Petőcz Kálmán (szerk.): National Populism and Slovak - Hungarian Relations in Slovakia 2006-2009 (Somorja, 2009)

Zsolt Gál: Argentina on the Danube - Populist Economic Policy as the Biggest Enemy of Sustainable Economic Growth

Zsolt Gál

portions (7 to 10 percent of GDP) and hovered at this level for three of four years in a row. The only thing the fiscal expansion accomplished was maintain the growth pace and the level of employment; in Hungary where a significant share of public expenditures was channelled to wages and welfare benefits it also caused a significant though temporary boost in citizens’ real income. Toward the end of the populist cycle, though, the growth pace began to slow down substantially, wages and employment began to plummet while inflation buoyed up; eventually, the crisis forced both governments to adopt austerity packages in order to avoid economic collapse. Completely in line with the Latin American experience, the fiscal expansion failed to stimulate economy even in early stages of the populist cycle. The main reason behind complete ineffectiveness of government incentives in the region is great openness and small size of most CEE countries’ domestic markets as well as minimum or none barriers to the free movement of goods, services and more and more importantly of production factors (i.e. capital and labour). The following table shows that all Visegrad Four (V4) countries except Poland, the only new EU member state with a sizeable domestic market, export more than three quarters of their production; similarly high is their imports intensity expressed as the high imports/GDP ratio.

Table 1

GDP, exports and imports of goods and services, export performance and import intensity of select EU member states (as of 2008, in million eur)

Country

Population (million, 2007)GDP

Exports% of GDP

Imports% of GDP

Slovakia

5.4

64,884

53,587

82.6

55,169

85

Hungary

10.1

105,842

85,715

81

84,138

79.5

Czech Republic

10.3

148,555

114,135

76.8

106,706

71.8

Poland

38.1

362,095

144,007

39.8

157,393

43.5

Germany

82.4

2,491,4001,177,040

47.21,022,570

41

EU-27

495.112,504,353

5,156,793

41.25,124,039

41

USA

304.5

9,698,5311,264,210

131,719,200

17.7

Source: Eurostat 2009/a. Statistics, National Accounts, Main Tables and author’s own calculations.

The high export/GDP ratio means that regardless of their volume, government’s fiscal incentives can never substitute the demand on export markets; on the other hand, they are very likely to stimulate imports due to economy’s high dependence on imports and low or none trade barriers. For instance, Slovakia exported more than 80% of its total production in 2008. The country’s exports were strongly concentrated in the hands of several supranational corporations operating in the field of automobile and electri-190