Economic Growth in Poland in the Last 30 Years

1. Introduction

Gross domestic product is often considered the best measure of how well the economy is performing. All advanced industrialized economies have a government agency that is responsible for computing these statistics. The purpose of GDP is to summarize in a single number of the euro value of economic activity in a given period of time. GDP is a gauge of economic performance. GDP measures something people care about- their incomes.

Gross domestic product is one of the most popular statistics that is currently used. How Polish economy changed in the last 30 years? What are the historical reasons for such a fast growth rate? How was the economy growing? How did the economy behave during the 2008 crisis? In this report, I would like to answer those questions about the Polish economy. I will include the historical background as well as statistical data. The aim of this report is to show how middle-sized countries in eastern Europe developed into the seventh economy in European Union. This report consists of three sections and a conclusion. In the first section, I would look at Polish history. In the second section, I will give a summary of the Polish economy, and in the last section, I will focus on analyzing data.

2. A little bit about the history

When preparing for this report it became clear to me that the history of Poland was a big factor to GDP growth in the last 30 years. At this point, I would like to argue why historical background should be considered important when analyzing the long-run macroeconomic situations. I would like to bring a statement from one of the world's most prominent economic historians Nathan Nunn: The empirical literature examining the relationship between history and current economic development has developed considerably in the past years. The main fact established by this literature is that history matters. A wide variety of papers have documented the important effects that certain historic events have had on long-term economic development. 

Poland as a country had a pretty tough history. Polish geographical location between two powerful neighbors Russia and Germany resulted in many conflicts starting back in medieval times and repeating themselves throughout history. There were even times when there was no such thing as a polish independent country. Growth and economical prosperity are based on stability and free-market activity of everyone involved in the economy. But Poland for a long time did not even have such a thing as a free market. In the XX century, pre-1989, Poland was a free country for just about 20 years (1920-1939). 

When World War II (1939-1945) was finished Poland was in ruin. In 1946, during the International Reparations Conference in Paris, Poland's material losses were evaluated to be $16,9 million U.S (which is about $222,524,466 in today's dollars). Dollars, $9,1 mil. in Yugoslavia. Two-fifths of Poland's cultural property was totally destroyed. Due to the international pressure of the world powers, Poland was forced to hand over 48% of its territory to the Soviet Union, equating to 178 000 km² of land. Most material losses were as a result of the German invader, others that of the responsibility of the USSR.

The history of Poland from 1945 to 1989 spans the period of Soviet dominance and communist rule imposed after the end of World War II over Poland, as reestablished within new borders. These years, while featuring general industrialization and urbanization and many improvements in the standard of living, were marred by communist terror, social unrest, political strife, and severe economic difficulties.

Free elections in 1989 and 1990 won Solidarity control of the parliament and the presidency, bringing the communist era to a close. A 'shock therapy' program during the early 1990s enabled the country to transform its economy into one of the most robust in Central Europe. Poland joined NATO in 1999 and the EU in 2004. With its transformation to a democratic, market-oriented country largely completed and with large investments in defense, energy, and other infrastructure, Poland is an increasingly active member of Euro-Atlantic organizations.

2. General information about the Polish economy

In 1989 Poland started the transition from a planned to a market economy via an extensive reform program. The reforms led to a significant decline in production, albeit less pronounced and of shorter duration than in the other transition economies. In the following years, the economic development was impressive, with sustained high growth, falling inflation and unemployment, and a rising standard of living.

Poland’s economy took off in the early 1990s and continued its growth into the new millennium. In 2004, Poland joined the EU, and in 2008, it officially became a high-income country, according to the GNI per Capita Atlas method of the World Bank. As such, Poland is one of the few countries that managed to overcome the ‘middle-income trap’ in recent decades, and one of the very few big countries (it had a population of around 38 million in 2014) that has managed this transition well2. Poland is also a very good performer with regard to the absorption of EU funds. For the 2007–2013 and 2014–2020 programming periods, it has had the largest allocations of structural funds in the EU (€72 and €82 billion, respectively). Over the 2007–2013 programming period, Poland absorbed most of the EU funds allocated to it. A large percentage of the 2007–2013 funds was directed toward bridging the infrastructure gap and constructing transport, urban water and wastewater, environmental, educational, sanitary, and other infrastructure assets. While Poland’s absorption performance is remarkable, the impact of EU funds is the country’s continual concern, as well as the disparities in the development levels between its regions. 

During the 2014–2020 programming period, there was a shift in the focus of the EU, away from hard infrastructure assets toward addressing systemic aspects of competitiveness, innovation, and entrepreneurship. This shift acknowledges that while it is critical to consolidate the progress made, it is equally important to ensure that the Cohesion Policy achieves a better leverage effect than they were able to achieve in the low-growth regions. The objective of the policy change is also to identify ways in which the EU member states, including Poland, could soon compete with the top-performing economies in the world.

Poland is now among the fastest-growing economies in the European Union (EU). Household consumption, fueled by expected increases in budgetary expenditures, a tight labor market, and rising wages, continues to grow. This, together with continuing low-interest rates and the execution of EU funds–related investments, will help sustain Poland's economic growth prospects in the near term. The two main challenges ahead for Poland are a shortage of labor and expansionary measures encouraged by the political calendar. The shortage of labor will eventually weigh heavily on potential GDP growth and be exacerbated by the early retirement of an increasing share of the workforce. Poland is at an advanced stage in its demographic transition; its working-age population is already shrinking and is forecast to further decline in the coming years.8 World Bank Poland overview.

3. Polish growth put into the numbers

Poland’s economic ascent is remarkable. After transitioning from communism, Poland’s per capita GDP growth was fast and stable averaging about 4 percent per year. The country moved from middle to high-income status in less than 15 years. The economy expanded rapidly: two-part perspiration (investment) and one part inspiration (innovation). And prosperity was shared. Jobs and income growth were broad-based, and lagging regions have been catching up. Throughout these changes, the income inequality coefficient—the Gini—did not increase. Poland has one of the lowest Gini coefficients among countries that have become high-income since 2000—the “new high-income countries” (HICs). It also has one of the lowest internal regional variations in GDP per capita.

The graph represents the GDP growth in Poland since 1990, as we can see each year for the past 30 years in Poland. The 1991 dip in the diagram can be explained by the fact that prior to the transition, income levels in Eastern Europe were presumably overrated so that the drop in output was exaggerated. In addition, in the first years after the reforms were implemented, there was probably inadequate coverage of new sectors in the economy and a lack of adjustment for quality improvements. Nor is the drop in GDP necessarily a good indicator of changes in the population's degree of prosperity. Part of the decline in output may have had a direct positive effect on prosperity, e.g. if polluting industries are discontinued or reduced.

According to the data Polish economy grew from 635 billion polish zloty in 1991 to 1,906 trillion polish zloty in 2018 which results in 300% growth over nearly 30 years. That is the best result in the European Union whats more since 1995, Poland has also become the fastest-growing large economy in the world among large countries at a similar level of development. It is beating even the Asian tigers such as South Korea, Singapore, and Taiwan.

In the last 30 years, Worlds economy only once has been in recession. The financial crisis in 2008 had a huge effect on the global economy. According to World Bank data, the European Union economy lost 0.8 trillion US dollars in just one year. Meanwhile Polish economy was having steady growth at 2,82% while Eurozone lost -4,5%. The graph below shows how fast each region in Europe recovered from the 2008 crisis. As we can conclude from the map Poland was practically not influenced by the crisis.

4. Conclusion:

As I explained in my report Poland has been experiencing 3rd decade of constant economical growth. In that time it became the 7th economy in European Union, tippled its gross domestic product, and became the 22nd economy in the world. The financial crisis in 2008 showed the true strength of the Polish economy as it did not stop it from growing. Polish history was the reason why Poland was so far behind other European countries but right now Poland is a good path to finding itself among European economic leaders.

Appendix:

1. The table shows GDP drowth in annual percentage for each year since 1991 (only available data)
2. Source: World Bank data: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2018&locations=PL&start=1990&view=chart

Bibliography:

1. N.Gregory Mankiw , Mark P. Taylor -Macroeconomics European Edition Worth Publishers 2014
2. The Importance of History for Economic Development; Nathan Nunn Department of Economics, Harvard University and NBER
3. 'Przegląd techniczny'. Naczelna Organizacja Techniczna (Poland). Warsaw: Centralny Instytut Informacji Naukowo-Technicznej i Ekonomicznej (Poland) - Główny Urząd Miar. 1984.
4.  Antoni Czubiński, Historia Polski XX wieku [The History of 20th Century Poland], Wydawnictwo Nauka i Innowacje, Poznań 2012
5. CIA The world factbook avaible at: https://www.cia.gov/library/publications/resources/the-world-factbook/geos/pl.html
6. Jens Anton Kjærgaard Larsen; The Economic Situation in Poland ,2002, available at: http://www.nationalbanken.dk/en/publications/Documents/2002/12/2002_MON4_the73.pdf
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9. Lessons from Poland, Insights for Poland: A SUSTAINABLE AND INCLUSIVE TRANSITION TO HIGH-INCOME STATUS . Document of the World Bank avaible at https://www.worldbank.org/en/country/poland/publication/lessons-from-poland-insights-for-poland
10. The Globalist; Marcin Piątkowski 2019, available at:https://www.theglobalist.com/poland-economy-gdp-european-union/