‘Accession bonus’ gave new EU members advantage over fellow emerging markets

‘Accession bonus’ gave new EU members advantage over fellow emerging markets
Slovenia is one of the new EU entrants closest to convergence with the West, its growth fuelled by export-oriented industries. / bne IntelliNews
By Clare Nuttall in Glasgow May 1, 2024

In the 20 years since the first eight countries from Central and Southeast Europe joined the European Union (EU), their GDP per capita has close to doubled as a share of Germany’s GDP per capita, a stronger performance than other emerging markets of similar size. 

This represents what the European Bank for Reconstruction and Development (EBRD) describes as an ‘accession boost’ for the eight countries — Czechia, Estonia, Hungary, Latvia, Lithuania, Poland, the Slovak Republic and Slovenia — that enabled them to outperform other emerging markets. 

“EU accession led to rapid growth of per capita incomes,” pointed out the EBRD in a report released ahead of the 20th anniversary of the May 1, 2004 accession. 

Using Germany (the EU’s largest economy) as a comparator, GDP per capita in the 2004 wave of accession countries increased from 26% of Germany’s per capita in 2003, to 50% by 2023 (at market exchange rates). 

“This performance is notable when compared with the speed at which other emerging markets at similar levels of development were converging with advanced economies,” said the EBRD report. 

“Of the 24 percentage points of growth observed by the accession countries over the 20 years, 10 of those percentage points are shared with other emerging markets with similar characteristics, while the remaining 14 percentage points can be thought of as an ‘EU accession bonus’.”

Looking at the reasons for the ‘EU accession bonus’, the EBRD says it was "facilitated by the rapid growth of exports relative to GDP as these economies became deeply integrated into European and global supply chains. In contrast, exports-to-GDP have been broadly flat among comparator economies during the last 20 years”. 

To make the comparison, the EBRD paired each of the eight 2004 entrants to the EU with other emerging markets with similar economy size, GDP per capita and GDP per capita growth in the years before accession. 

The bonus started to become apparent even before accession; it began to emerge around 2001-02 as the prospects of accession solidified and foreign direct investment (FDI) inflows into the EU-8 surged. 

The last 20 years did not all go smoothly. The 2008-09 crisis, in particular, inflicted a lot of damage on the region, temporarily rendering the EU accession bonus statistically insignificant, but growth rates exceeding those in the comparator countries later resumed.

The EBRD’s research shows that the income convergence was in general faster in the lower-income economies from the bloc. Later entrants Bulgaria and Romania more than tripled their per capita incomes as a share of Germany’s after their accession in 2007.

However, they still lag behind the frontrunners in the group. By 2023, there was still considerable variation in GDP per capita levels among the 11 eastern EU economies, ranging from 28% of Germany’s in Bulgaria to 58-59% in Estonia and Slovenia.

According to the EBRD, a large part of the ‘EU accession bonus’ comes from the robust expansion of exports as a proportion of GDP. Over the years, the average export-to-GDP ratio in the EU-11 economies surged from 39% in 1995 to 44% in 2003 and 69% by 2023, driven by their deepening integration into global and European supply chains. Poland experienced the most significant relative increase in this ratio, which rose from 34% to 57% between 2004 and 2023.

As with GDP per capita, as of 2023, export-to-GDP ratios exhibited considerable diversity, ranging from 40% in Romania to 92% in the Slovak Republic. In contrast, comparator economies witnessed largely stagnant export-to-GDP ratios over the past two decades, the EBRD data showed. 

At the same time, gains in health and life satisfaction have accompanied the increased economic prosperity in the new EU member states. According to data from the Life in Transition Survey, conducted by the EBRD in collaboration with the World Bank, the share of people reporting satisfaction with their lives increased from 51% to 58% between 2006 and 2022 in the EU-8 economies. Similarly, self-assessments of physical health improved significantly over the same period.