Studies Eastern European Markets
Eastern European Markets
the 2nd of February 2004

Tauno Tiusanen
POLAND, THE LARGEST NEW EU COUNTRY
Lappeenranta University of Technology
Northern Dimension Research Centre
Publication 4


Dr. Tauno Tiusanen is director of the Northern Dimension Research Centre and professor in the Department of Industrial Engineering and Management at Lappeenranta University of Technology (LUT), Finland.


    Conclusions

    Poland is far the largest TE in Central Eastern Europe. This new EU-member has a very peculiar economic structure. With a large number of small farms, Poland will receive extensive subsidies from Brussels. It is interesting to see how Polish rural economy will be able to absorb the forthcoming extra money.

    It is not an overstatement that Poland experienced an economic miracle in the 1990s with a strong investment boom and successful restructuring of export. Poland was not able to catch up with Western Europe in living standard, but the gap in welfare has declined.

    Strong economic growth could not solve the problem of unemployment. In actual fact, unemployment rate increased clearly amid the boom period. Productivity increased rapidly in manufacturing, but so did unit labour costs. Therefore, about one fifth of labour force was out of work in the early 21st century.

    Competition has obviously strengthened in the Polish transition because inflation has abated very clearly in the first years of the new century. Current account deficits have not been excessive. However, balancing the books in the public sector seems to be a headache. Special attention must be paid to this problem because the membership of EMU becomes an up-to-date topic.

    Poland has not been especially successful in attracting FDIs in TE comparison. However, capital inflow in FDI-form has not been negligible. FDIs have revolutionised telecom, retail trade and financial service sections. Foreign capital has also contributed essentially to restructure manufacturing industry.

    It can be assumed that a certain level of saturation has been reached in FDI activity. In TE-comparison, Poland has become a relatively high unit labour cost location. Thus, labour intensive branches will not be likely to attract extensive FDI-flows in the near future. Rapid decrease of unemployment is thus unlikely. It will not be easy to find mitigation to the labour market problem by exporting workers because demand for blue-collar workers in Western Europe is limited.

    Exchange rate between zloty and euro gives presently pretty good price competitiveness to Polish exportables. Thus, no serious CA problems in Poland can be expected in the near future.

    Overall, Polish transition has been highly successful process. Living standard has increased rather rapidly without causing serious inbalancies in the economy. However, Poland is facing some serious problems in restructuring in her rural society. Obviously, it takes time to overcome all structural problems of the Polish economy. Hopefully, the EU-membership will have a positive impact on the restructuring process.

    All new EU-members have to learn how to make the best of facilities now available to them for promoting investment, such as EU regional development funds which are more limited than those for the 15 former EU-countries. The new EU-members have to develop the institutional framework to administer and properly channel the variety of funds available from the EU.

    Obviously, all new EU member countries must try to combine their advanced education with competitive production costs. The legal regime of the EU provides the necessary framework for the free movement of production factors within the region, in offering national treatment and aiming for competitive equality within the union. Obviously, in this new integrating Europe, skill-intensive assets in every simple member-country, including Poland, will be the most important success factor.


Dr. Tauno Tiusanen is director of the Northern Dimension Research Centre and professor in the Department of Industrial Engineering and Management at Lappeenranta University of Technology (LUT), Finland.


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Lappeenranta University of Technology
Northern Dimension Research Centre
Telephone: +358-5-621 11
Telefax: +358-5-621 2644
www.lut.fi/nordi

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