Publication

The EU enlargement to the East resulted in a dramatic core-periphery income gap: real GDP per capita in East Central Europe (ECE) is up to 60 percent lower than in the EU 15. However, as capital mobility is no longer hindered, investment will flow from capital-rich western Europe to the capital-poor ECE, where it will ensure the expansion of capital stock per worker and thus lead to productivity growth. The effect will be a gradual East-West convergence of input and output prices, including wages, and this even without labor mobility.