The Analysis of Institutional Environment in the Area of Product Market Competition in the New EU Member States: What Do the Data Say About the Models of Capitalism Emerging in the CEE Countries?

The analysis suggests that Bulgaria was the most similar to the Mediterranean model of capitalism. This took place both in the initial and final years of the study. The similarity coefficient for the initial year given in Table 3 amounted to 54.0% in relation to that of Spain. In relation to the other three countries, the coefficients were significantly lower: 37.4% in relation to Germany, 35.4% against the UK, and 35.1% toward Sweden. In the final year, the similarity to Spain even increased: the coefficient between Bulgaria and Spain was 65.2%, i.e. significantly higher than in comparison with that of the other three reference countries: Germany (43.3%), Sweden (37.7%), and the UK (35.9%).

A strong similarity to Spain over the last 10 years is also confirmed by the correlation coefficient for changes in the values of indicators, which are given in Table 2. The correlation coefficient calculated in this way between Bulgaria and Spain is 0.9369 and is statistically significant at the 1% significance level (p = 0.0000). The correlation coefficients of the dynamics of 22 variables between Bulgaria and the other three reference countries are negative but statistically insignificant.

The results suggest that in terms of path dependency, changes in the area of product market competition in Bulgaria were very similar to changes taking place in Spain. It can thus be assumed that the model of capitalism in Bulgaria was very similar to the Mediterranean model of capitalism, and the similarity was stable over time.

Analysis of polygons in Figure 1 confirms that the similarity to Spain was strong in both the initial and final years. The figure also shows that the similarity (or its lack) between Bulgaria and all four reference countries was quite stable over time: the variables with the highest similarity between Bulgaria and the other reference countries were more or less the same in the initial and final years of the study.

Croatia – like Bulgaria – was the most similar to the Mediterranean model of capitalism in terms of the institutional environment in the area of product market competition. Croatia shaped its path dependency in the same way as Spain. High resemblance to the Mediterranean model was observed both in the initial and final years. In the mid-2000s, the similarity coefficient between Croatia and Spain equaled 58.7% and was much higher than in the other three reference economies: Germany (43.0%), Sweden (43.7%), and the UK (39.7%). At the end of the period, a high similarity to the Mediterranean model was maintained (56.5%), but the similarity to the Scandinavian and Anglo-Saxon models decreased to 34.5% and 35.5%, respectively.

Analysis of polygons in Figure 2 confirms the highest institutional similarity between Croatia and Spain, but in the case of several variables, there are strong differences between these countries at the beginning and end of the analyzed period. In the mid-2000s, Croatia was very different from Spain in terms of total tax rate, time needed to register ownership, and time needed to start a business. In turn, in recent years, the largest differences between Croatia and Spain could be additionally noted in terms of trade barriers and the number of tax payments, while they were not visible in time needed to start a business. Such an outcome supports the view of the patchwork nature of capitalism.

Figure 2

Correlation coefficients between Croatia and the four reference countries for changes in 22 indicators are statistically insignificant at the 1% significance level and cannot be the basis for inference.

The Czech economy also shows the strongest similarity to Spain. This finding results both from comparing the Czech Republic and Spain based on the coefficients of similarity and the values of particular indicators on polygons, as well as from the analysis of correlation coefficients calculated for the dynamics of the variables examined.

The similarity coefficient presented in Table 3 in the period around the country’s entry into the EU equaled 70.5% in relation to Spain, while in the case of other countries, it was lower: 66.3% toward Sweden and 59.5% and 52.2% in relation to Germany and the UK, respectively. In the last year, the institutional architecture of the Czech Republic was the closest to the Mediterranean model as well (similarity coefficient at 64.3%), while the resemblance to the other three models (continental, Nordic, and liberal) was smaller with coefficients around 55%.

High similarity of the Czech and Spanish institutional environment is also visible in the case of the analysis of changes in indicators over the last decade. The correlation coefficient on data representing the dynamics of 22 variables in the Czech Republic and Spain was 0.919 and was statistically significant at 1% level (p = 0.0000). Analogous correlation coefficients between the Czech Republic and other reference countries turned out to be statistically insignificant at the 1% significance level.

At the time of EU accession, the Czech Republic was almost identical to Spain in terms of the following three areas: business freedom, intensity of local competition, and the overall competitiveness index called Global Competitiveness Index (GCI). For example, the value of the latter index in the 2006–2007 edition (i.e. for the oldest available data) equaled 4.67 in the Czech Republic and 4.70 in Spain, i.e. at a similar level. In the final year, the greatest similarity between the Czech and Spanish economies concerned the effectiveness of anti-monopoly policy.

The proximity of the institutional systems in product market competition in the Czech and Mediterranean models of capitalism and the relative similarity of past trends can also be seen on the polygons shown in Figure 3. Polygons demonstrate that the Czech Republic was evidently different from reference countries (not only Spain but also Germany, Sweden, and the UK) in terms of one variable: the number of enterprises in manufacturing and – albeit to a lesser extent – the total number of enterprises. Indeed, the analysis of source data shows that the Czech economy was characterized by the largest number of enterprises per one million inhabitants (in total economy and in manufacturing) among the entire group of 15 countries during both the beginning and the final years.

Figure 3

In contrast to the three previously analyzed countries, the Estonian economy is characterized by a different institutional architecture and is not the closest to the Mediterranean model. The path that Estonia followed was different, and it is difficult to determine to which of the already shaped capitalist models, it fits the most.

The similarity coefficients calculated for the initial year do not allow to draw unambiguous conclusions. The difference between the most similar model, i.e. Scandinavian, and the most different one, i.e. continental, is less than 3 percentage points, which makes the whole row in part (a) of Table 3 marked in gray.

The data suggest that after joining the EU, Estonia found itself on the path that made this country similar to both the Anglo-Saxon and Scandinavian models. As a result, the highest similarity coefficients in the final year were recorded in relation to the UK (73.2%) and Sweden (72.8%). The similarity to Germany and Spain in recent years was lower (similarity coefficients equal to 65.6% and 64.4%, respectively). The closeness to the Anglo-Saxon model results from the high degree of economic freedom in Estonia, the efficient tax system and, as a result, a large openness and competitiveness of the economy. It turns out that in the case of many analyzed variables, Estonia achieves the best (or one of the better) outcomes in the entire group of 11 CEE countries. For example, Estonia is a leader among the new EU members in terms of time needed to prepare and pay taxes, the number of tax payments, time needed to start a business, and the scope of domestic competition. In turn, a large similarity to Sweden results, among others, from the geographical proximity of these countries and the strong ties of Estonia with Scandinavia.

The Estonian path of convergence toward the Anglo-Saxon model of capitalism is also confirmed by the correlation coefficients. A statistically significant correlation (at the 1% significance level) occurs only with the UK, and the value of the correlation coefficient is positive. This is an additional argument suggesting that the changes in the values of the analyzed variables in Estonia were often in line with the changes observed in Great Britain.

The polygons illustrated in Figure 4 show that the model of capitalism in Estonia displayed many common features with all four reference models of capitalism. As a result – especially in part (a) of the chart – it is difficult to distinguish the Western European country most similar to Estonia in terms of the analyzed variables. This outcome supports the concept of patchwork character of capitalism.

Figure 4

The model of capitalism that appeared in Hungary most resembles the Mediterranean variant of capitalism existing in Spain. This situation occurred both in the initial and final years of the analysis. The similarity coefficients for the initial year amounted to 81.7% in relation to Spain, while in comparison to other reference countries, they were equal to 71.7% (Sweden), 66.8% (Germany), and 56.4% (UK). In the final year, the strongest similarity of the Hungarian economy to the Mediterranean model is also reflected by high similarity coefficient at the level of 72.5%, well above three other values (between 50% and 60% for the three remaining reference countries).

The institutional path that makes the Hungarian economy similar to the Mediterranean model of capitalism is also confirmed by a positive and statistically significant (at 1% significance level) correlation coefficient for changes in 22 indicators in Hungary and Spain. Nevertheless, looking at the mutual correlations of the dynamics of changes, statistically significant coefficients were also recorded between Hungary and Sweden (negative relationship) and between Hungary and the UK (positive link).

The analysis of individual variables shows that Hungary achieved similar results as Spain in the initial year in three areas: business freedom, the intensity of local competition, and the effectiveness of anti-monopoly policy. Recently, the strongest similarity to the Mediterranean model of capitalism occurred in terms of the economic impact of law on foreign direct investments (FDI) and the number of enterprises in the economy (per million inhabitants).

Figure 5 also shows the strongest similarity of Hungary to Spain. Particularly in part (a) of the chart, the black dotted line is located very close to the vertices of the polygon, confirming the high value of the similarity coefficient.

Figure 5

In contrast to the previously discussed Baltic country, i.e. Estonia, the institutional environment in the area of product market competition of the Latvian economy is the closest to the Mediterranean model of capitalism. This is confirmed by the calculated similarity coefficients. For the initial year, this coefficient equaled 71.4% compared to that of Spain, but in relation to the other three reference countries, it stood at 56%–58%. Analogous differences, although smaller, occurred in the final year of the analysis. The similarity coefficient of Latvia to Spain, according to the latest available data, reached the value of 70.2%, and for the remaining three reference countries, it ranged from 62% to 67%.

Analysis of polygons in Figure 6 confirms the strong similarity between Latvia and Spain. Part (a) of the chart suggests that the Latvian economy was close to the Mediterranean model of capitalism, but it remained remote compared to other models mainly on the basis of competitiveness indicators from the World Economic Forum database. For example, if we look at the aggregate GCI (variable gci_compind), we see that the value of this indicator for Latvia (4.47 in the initial year and 4.45 in the final year) was the closest to that for Spain, for which this indicator stood at 4.70 and 4.59, respectively, while in the other reference countries, this index exceeded 5 in both years.

Figure 6

The Lithuanian economy is similar in some aspects to the Latvian one. As a result, Lithuania achieves outcomes comparable to those by Latvia in terms of institutional environment prevailing at product markets after joining the EU. As in the case of Latvia, the greatest similarity of the institutional architecture in the field of product market competition occurred between Lithuania and Spain. The closeness to the Mediterranean model of capitalism was evident in both analyzed years and is confirmed by similarity coefficients.

Lithuania’s similarity coefficient toward Spain amounted to 71.8% in the initial year and 72.8% in the final year, i.e. at similar levels as in the case of Latvia. Lithuania’s coefficients in relation to the other three reference countries in both analyzed years were lower and ranged from 50% to 60%.

The polygons in Figure 7 confirm the significant resemblance of Lithuania to the Mediterranean model of capitalism. Polygons for Lithuania are also similar in terms of both shape and surface to analogous polygons for Latvia, which reflects the common characteristics of the economies of these two Baltic countries.

Figure 7

The results suggest that in terms of product market competition, the Polish economy was the most similar to the Mediterranean model of capitalism represented by Spain. In the initial year, the similarity coefficient for this pair of countries amounted to 70.0% and was much higher than that between Poland and the other three reference economies: Sweden (47.1%), Germany (47.0%), and the UK (43.8%). In the final year, Poland maintained its greatest resemblance to the Mediterranean model of capitalism with a coefficient of 73.4%. The German economy ranked second in terms of the degree of similarity (a coefficient of 62.8%). The values of similarity coefficients in relation to the two other reference countries, Great Britain and Sweden, were significantly lower and amounted to around 53%.

In the initial year, the relatively strong similarity of Poland to the Mediterranean model and weak resemblance to the Scandinavian, Anglo-Saxon and continental models of capitalism could be observed for the following indicators: institutions, effectiveness of anti-monopoly policy, domestic competition, competition, GCI, and the cost of procedures required to start a business. One hundred percent similarity to Spain also occurred in the case of business freedom, but for this variable, the same full similarity also took place in relation to Germany and Sweden (for all the abovementioned countries, the value of the indicator was 70.0).

At the end of the analyzed period, the areas in which Poland was highly similar to the Mediterranean model and at the same time relatively different from other Western European countries were as follows: business freedom, institutions, effectiveness of anti-monopoly policy, GCI competitiveness index, and cost of procedures required to start a business. As we can see, the areas of similarity between Poland and Spain were to a large extent the same in both years.

Figure 8 shows the polygons of Poland’s similarity to the four reference countries. In part (a), the black dotted line representing Spain covers the largest area (it lies near the vertices) and is significantly different compared with the other lines. This confirms the greatest similarity of Poland to the Mediterranean model of capitalism and much smaller similarity to the other models in the initial year of the study. In part (b) of the figure, the black solid line increased the coverage of the polygon, indicating the relative rapprochement by Poland toward Germany in recent years, being the sign of the patchwork nature of capitalism.

Figure 8

Like the majority of the countries analyzed so far, the institutional architecture of Romania was the closest to the Mediterranean model of capitalism in both analyzed years. At the beginning of the period, the coefficient in relation to Spain amounted to 59.3% and was higher than that for other countries: Germany (46.5%), Sweden (45.4%), and the UK (40.7%). Analogous differences also occurred in the final year. The similarity coefficient toward Spain amounted to 70.9%, well above the corresponding figures for Germany (55.5%), Sweden (48.2%), and the UK (49.0%). The degree of similarity for all 24 variables is illustrated on the polygons shown in Figure 9.

Figure 9

In the initial year, the similarity coefficient for Romania relative to the Mediterranean model was at a level comparable to that recorded by Bulgaria and Croatia and at the same time significantly lower than that noted by the other eight CEE countries. This is due to the fact that Romania, Bulgaria, and Croatia joined the EU a few years later (the first two countries in 2007 and Croatia in 2013), so the institutional environment in these countries was characterized in the mid-2000s by a relatively small degree of similarity to the shaped models of capitalism in Western Europe. In the final year of the analysis, i.e. over 10 years after the largest EU enlargement into CEE, the similarity coefficient for Romania (as well as for Bulgaria, although not for Croatia) in relation to that for Spain converged to a level comparable with that for many other CEE countries.

Around the EU accession, Slovakia revealed institutional architecture in the area of product market competition comparable to that prevailing in three Western European models of capitalism: Mediterranean, continental, and Scandinavian. Despite the highest resemblance toward Spain (67.2%), the analogous figures in relation to Germany and Sweden are at comparable levels (65.9% and 65.2%, respectively). Hence, it is difficult to recognize (based on 24 macroeconomic variables adopted in the study) to what model of capitalism the Slovak economy converged, which supports the view on the patchwork nature of capitalism. Figure 10 shows polygons that compare Slovakia with four reference countries in the initial and final years.

Figure 10

At the end of the period, the situation regarding the reference country significantly crystallized. According to the newest available data, Slovakia is the closest to the Mediterranean model of capitalism represented by Spain. The corresponding similarity coefficient was 67.6%. The similarity coefficients in relation to other countries ranged from 50% to 56%.

The resemblance to Spain has been confirmed by correlation analysis. The correlation coefficient between Slovakia and Spain for changes in 22 indicators amounted to 0.6614 and was statistically significant at the 1% significance level. Correlation coefficients against Germany and the UK were statistically insignificant, while negative correlation was recorded toward Sweden.

Slovenia shows the greatest resemblance to the Mediterranean model of capitalism. Especially in the initial year, i.e. around the country’s accession to the EU, the similarity to Spain was clearly greater than the convergence toward other reference countries. In this year, the similarity coefficient to Spain was 68.5%, while in the case of the other Western European economies, it was much lower: Germany (43.9%), Sweden (48.2%), and the UK (45.2%). A strong similarity to Spain is visible in part (a) of Figure 11. The black dotted line covers an area much larger than the other lines, indicating the relatively high closeness between Slovenia and Spain in the area of product market competition. This result is difficult to consider as accidental. Slovenia is a country located in the Mediterranean region and borders Italy, a state that is also treated as a typical example of the Mediterranean model of capitalism. Such a path dependence, including the closeness of countries in historical, geographical, political, social, and economic terms, has made Slovenia the closest to the Mediterranean model.

Figure 11

The proximity to the Mediterranean model also occurred in the final year of the study, although the differences with other reference countries were not so large. The similarity coefficient against Spain was 60.3%, toward Germany and Sweden was 50%–52%, and in relation to the UK was 45%. Slovenia can be considered as the least similar to the liberal model of capitalism, which results, inter alia, from high state involvement in the economy of this country.

As we can see, EU membership shaped the path dependence and brought Slovenia closer to other EU countries in terms of the institutional environment in the area of product market competition.