Polands Economic Development in the past 20 years

A Critical Analysis of Poland’s Economic Development over the Past Two Decades
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Abstract
The economic turn around of Poland can be traced back to the 1990s. During this period, the country started to pursue a policy of economic liberalization under the Markowitz Government. In fact, the long-term reforms introduced by the Mazowiecki and Buzek Governments helped Poland to avoid the global economic downturn of 2007 to 2008, which affected most of the countries in the EU. The Polish economy has registered a robust over the past two decades. The economic growth of Poland is reflected from its GDP per capita. Over the past two decades, the average growth in GDP per capita across the Polish population has been 6%. As a result, Poland has outperformed most of the countries in Central Europe as per its GDP growth. The present analysis was based on an integration of secondary and primary data. The secondary data was obtained from the evidence-based literature, while the primary data was obtained from www.tradingeconomics.com. The primary data were used to construct a logistic regression model with GDP as the dependent variable and unemployment rate, bank interest rate, and inflation rate, Government debt to GDP, and GDP per capita of Poland from 2008 to 2016 as the independent variables. The appraisal of the logistic regression and historical data reflected that Poland’s economic development is based on strong foundations. However, the Polish Government should take stringent measures in addressing labor shortage and increased wage pressures.

Finally, the Polish Government should provide appropriate stimulus for expediting growth for the agricultural and research sectors.
Keywords: Poland, Economy, GDP, EU, and two decades
A Critical Analysis of Poland’s Economic Development over the Past Two Decades
Introduction
During 2018, the economy of Poland is the fifth largest amongst the European Union (EU). The economic turn around of Poland can be traced back to the 1990s. During this period, the country started to pursue a policy of economic liberalization under the Markowitz Government. In fact, the long-term reforms introduced by the Mazowiecki and Buzek Governments helped Poland to avoid the global economic downturn of 2007 to 2008, which affected most of the countries in the EU. The Polish economy has registered a robust over the past two decades. The economic growth of Poland is reflected from its GDP per capita (OECD 2017, Giang, 2012, Boeri and Garibaldi, 2006). Over the past two decades, the average growth in GDP per capita across the Polish population has been 6%. As a result, Poland has outperformed most of the countries in Central Europe as per its GDP growth. The country has doubled its GDP share by almost two-folds since 1990. In fact, Poland is ranked at the 23rd position as per its GDP growth across the globe. For such reasons, the World Bank has classified Poland as a “high-income economy” (Giang, 2012).
The country was ranked at the 24th position as per the Ease of Doing Business Index (EDBI). The economy of Poland is mainly driven by the service sector (62.3%), industrial sector (34.2%), and agriculture (3.5%). The economic reform that was initiated in the 1990s spurred the Polish external debt to rise by almost nine-folds in 2014 (42 billion U.S. Dollars versus 365 billion U.S. Dollars) (OECD 2017, Giang, 2012, Boeri and Garibaldi, 2006). During this period, there was a whooping increase in Polish exports. As a result of such economic silver lining, in 2017, the FTSE Russell classified Poland as a “Developed Market” from its existing status of “Emerging Market’ (OECD, 2017). Although such accolades and statistics place Poland as an emerging economic power, however; there are certain bottlenecks the country must ensure to enjoy its economic supremacy. For example, although the Central Statistical Office of Poland reported that in 2010 Poland registered one of the best economic growth rates in the EU (3.7%), its economic growth rate fluctuated over the next five years. However, robust government stimulus and a tightened labor market helped Poland to make a turnaround from 2016 onwards (OECD 2017, Giang, 2012, Boeri and Garibaldi, 2006).
The present article critically analyzed the trend and transitions in Polish Economy over the past two decades. The article aimed to identify the key bottlenecks and drivers of Polish economy in the future. Hence, this article explored one primary research question “How the economic indicators of Poland have changed over the past two decades and what are their key influencers?” The research question was appraised based on the analysis of both secondary and primary data. The secondary data was retrieved from a systemic review of the evidence-based literature. On the other hand, the primary data analysis was based on the economic indices for Poland and other EU countries that were downloaded from www.tradingeconomics.com.
Secondary Data Analysis
Historical Basis of Poland’s Growing Economy: Governments and Policies
Poland’s economic growth could be attributed to the landmark reforms that were implemented by the Mazowiecki and Buzek Governments. The economic reform introduced such governments are popularly referred as the ‘shock therapy’ and ‘Big Bang’ theories in Polish economy these governments introduced four critical steps that helped Poland to overcome the market socialism decision that was implemented by the erstwhile Communist Governments. First of all, the Mazowiecki government abolished subsidies to the state-owned enterprises that were incurring heavy fiscal losses. This is because the Mazowiecki government was competent to foresee the bankruptcy of these firms in the future.
The second initiative prevented the monetization of the budget deficit. The third step was to remove bad loans that were enjoyed by the state firms. Moreover, these governments imposed positive real interest rates on the outstanding debts of such firms (Gomulka, 1992, Gora and Rutkowski, 1990). The fourth initiative includes the imposition of huge marginal taxes on excessive wage growths. Such measures were introduced to cut the link between inflation and growth in wages (Gomulka, 1992, Gora and Rutkowski, 1990). Moreover, the Foreign Currency Act paved the internal convertibility of the Polish Currency (Zloty) and also helped to eliminate the remnant vestiges of state monopoly in international trade. The acts framed on employment and unemployment benefits witnessed a structured layoff that appeased the trade unions. Such measures paved the way for the relocation of labor to more viable and profitable areas that were virtually impossible in the erstwhile communist eras (Pinto, Belka, & Krajewski, 1993). The acts and policies that were framed by the Mazowiecki and Buzek Governments not only paved the way for macroeconomic stabilization of Poland but also helped to build the concepts of social safety (Gomulka, 1992, Gora and Rutkowski, 1990).
Later, the Buzek Government encouraged large economic reforms to expedite the vision and mission of the Mazowiecki government. Although the short-run costs of the economic reforms caused the elimination of the reform-friendly governments from the political sphere of Poland, nevertheless; the implementation of such reforms by the successor governments has seen Poland reach new highs in the field of global economy. Most authors contend that the major reason for the success of such reforms can be attributed to the Polish population itself. Historically, the Polish population has always remained aligned with the Western European society. In fact, the Polish population was already sensitized to overcome the influence of Russia that was ongoing since the World War II. With the fall of the Communist Governments and rise of the Mazowiecki and Buzek Governments, Poland was ready to join the silver lines of the global economy and the economic advantage enjoyed by the rest of the EU (Roland, 2000, Roland, 2002, Schwab, 2011).
Sector-Wise Evaluation
Agricultural Sector
Almost 12.7% of the Polish workforce is employed in the agricultural sector. In fact, agriculture contributes for only 3.8% of the total GDP of Poland. Hence, the contribution of the agricultural sector to the GDP of Poland is comparatively low compared to other sectors. Poland’s agricultural sector is mainly governed by the private stakeholders during the socialist rule. Most of the state firms that were owned by the federal stakeholders have been leased out. On the contrary, Poland is a potent exporter of fruits and vegetables. Hence, the agricultural sector of Poland should exhibit radical growth over the next few years. Such possibilities are not far from reality due to the takeover of state firms by the private stakeholders (Giang, 2012).
Financial Sector
The financial sector of Poland is majorly controlled by the foreign investors. In fact, foreign investments contribute to 68% of the total capital of the Polish banks. Hence, Poland needs to continuously attract foreign investments. On the other hand, the Polish Government should emphasize on the make-in-Poland concept to reduce their stake on foreign investments.
Tourism Sector
Tourism is another sector that has historically driven the economic growth of Poland. The number of visits by foreign tourists significantly increased from 15 million in 2004 to 80.5 million in 2016. Such a whopping increase could be attributed to the growth in Polish economy and an improvement in the living standards of the Polish population.
Production and Manufacturing Sectors
Although Poland’s production and manufacturing sectors suffered major setbacks in the erstwhile Communist rule, however; it significantly retrieved under the leadership of socialist governments. On the contrary, Poland still suffers a shortage of labor across these sectors. The Polish Government should take stringent measures in deploying competent resources in these sectors (Giang, 2012).
Export and FDI
The major Polish exports include automobiles, plastics, furniture, and electronics. Most of the Polish exports were oriented towards Western European and Arabian countries. In fact, the United Arab Emirates is the largest trading partner of Poland and most of the Foreign Direct investments are oriented towards the UAE market.
Primary Data Analysis
The relevant primary data (table 1) for the present study was obtained from www.tradingeconomics.com  GDP Unemployment rate (Une) Inflation rate(inf) Interest rate(Int) Government debt to GDP (GDG) GDP per capita (GDC)
2008 533.8 11 4.5 6 46.3 23091
2009 439.8 11 4 5 49.4 20952
2010 479.32 13 3.8 3.8 53.1 21770
2011 528.8 13 4.8 3.8 54.1 22850
2012 500.34 13.5 4 4.5 53.7 23217
2013 524.21 14.2 3.8 4.5 55.7 23555
2014 545.15 14 1.5 2.5 50.02 24346
2015 477.34 12 -1.8 2 51.1 25299
2016 469.51 10 -0.8 1.6 54.1 26000
Table 1: primary data as obtained from www.tradingeconomics.com (Trading economics, 2018)

Fig 1: GDP of Poland from 2008 to 2016

Fig 2: GDP per capita of Poland from 2008 to 2016

Fig 3: Government debt to GDP of Poland from 2008 to 2016

Fig 4: Unemployment rate, bank interest rate, and inflation rate in Poland from 2008 to 2016
The primary data were used to construct a logistic regression model with GDP as the dependent variable and unemployment rate, bank interest rate, and inflation rate, Government debt to GDP, and GDP per capita of Poland from 2008 to 2016 as the independent variables. The major objective of the logistic regression model was to explore the dependency of GDP on the respective variables and vice-versa exclusively for Poland. The regression statistics was appraised at the 0.05 level of significance. Moreover, the logistic regression model was assessed for each independent variable both independently and holistically in consideration to the other independent variables. All statistical analysis for the present study was conducted with the R-program software as per www.wessa.net.
Outputs
Multiple Linear Regression – Estimated Regression Equation
GDP[t] = + 5.96469 + 13.1439Une[t] + 22.7036inf[t] -10.7475int[t] -7.31499GDG[t] + 0.0294588`GDCr`[t] + e[t]
Table 2: the logistic regression model
Variable Parameter 2-tail p-value 1-tail p-value
(Intercept) +5.965 0.9707 0.4853
Une +13.14 0.03514 0.01757
inf +22.7 0.02588 0.01294
int -10.75 0.2662 0.1331
GDG -7.315 0.03493 0.01747
`GDCr` +0.02946 0.009922 0.004961
Table 3: represents the correlation value of different independent variables with the dependent variable (GDP).
   
   
Multiple Linear Regression – Regression Statistics
Multiple R 0.9771
R-squared 0.9547
Adjusted R-squared 0.8793
F-TEST (value) 12.65
F-TEST (DF numerator) 5
F-TEST (DF denominator) 3
p-value 0.03139
Multiple Linear Regression – Residual Statistics
Residual Standard Deviation 12.34
Sum Squared Residuals 456.9
Table 4: Represents the statistical significance of the logistic regression model holistically
First of all, the logistic regression model showed that changes in the rate of interest would not impact the GDP of Poland. In fact, for this reason, the rate of interest has remained stable at 1.6%. However, the Polish population and entrepreneurs should take advantage of the low-interest rates to nurture the concept of make-in-Poland. On the other hand, there was a significant positive correlation between GDP and unemployment rate in Poland. Hence, such findings imply that the benefit of increased GDP might not be perceived or extended to everybody. Moreover, an increase in the rate of inflation was significantly and positively correlated to GDP. Such findings imply that although the cost of goods and services has increased, it has been negated by the higher purchasing power of the polish population. These assumptions are strongly supported by a significant and positive correlation between GDP per capita and GDP (p=0.009). Hence, the purchasing power of the Polish population and increased living standards is well-justified by the logistic regression model. Perhaps, the most important finding of this logistic regression is the relation between GDP and the proportion of Government Debt to GDP. The logistic regression analysis reflects that the GDP is significantly and negatively correlated with the proportion of Government Debt to GDP. Such findings strengthen Poland’s economic position not only in the EU but also across the globe.
Discussion and Conclusion
The appraisal of primary and secondary data in this study reflects that Poland has certainly registered robust growth in its GDP over the past two decades. Although different authors predicted that the economic growth of Poland would slow down in early 2018, however; such speculations are still away from reality. In fact, the YOY GDP growth rate for Poland in 2018 is poised at 5.1%. It is evident that the domestic market is driving the economic growth of Poland. Such facets are underpinned by increased public spending (which is a measure of GDP per capita) and increased social transfers. On the other hand, there has been a positive stimulus for investment and lowering of retirement age. Such policies have increased cash flow in the domestic market, and have generated the need for new employments (OECD, 2017). Such decisions have also unfolded the need for additional revenues and new tax reforms. However, recent trends indicate that the rate of inflation is going to rise over the next few months. Under these conditions, tightening of monetary policy can help to mitigate growth in inflation rates. The major issue that is bothering Poland is the shortage of laborers and a competent workforce. Hence, policymakers and the present Polish Government should take robust measures to make Poland a ‘country of choice for employment.’
Such measures would not only attract the Polish nationals but would pave the way for employment for migrants and foreign workforce. Such initiatives would not only help to overcome the bottlenecks in a tightening labor market but would also promote domestic spending. As a result, the rising inflation rate could be further managed by increased cash flows to the domestic market. The second bottleneck that could hinder the economy of Poland is the reduction in the profitability of the banks. Such conclusions are drawn from the reductions in interest margin. Moreover, the tax reforms and regulatory changes have also eroded the profitability of the Polish Banks. Although such a situation could be considered a silver line for encouraging entrepreneurship and businesses, however; it may also threaten the stability of the national economy. Hence, the first two bottlenecks and their solutions are interdependent on each other (OECD, 2017).
The Polish government should take major steps in ensuring that cash flows and debts are oriented towards Polish citizens. However, Polish entrepreneurs or businesses should be encouraged to attract the best talents from anywhere in the world. Although the job vacancies have reached is historical highs, the Government should not restrict or prevent structured lay-offs from the non-profitable or under profitable state-run firms. In fact, the present government should step into the reform movements that were initiated by the Mazowiecki and Buzek Governments. The findings of the present study suggest that there is once again a need for structured lay-offs. Such assumptions could be drawn from the demographic distribution of the labor shortages. Most of the labor shortages in Poland are witnessed across the manufacturing sector compared to the other sectors. Such uneven distribution of labor shortages has further accelerated wage pressures from workers. The rise in inflation can be positively correlated to the rise in the Food consumer price index (FCPI) during the last three years. Increase in the FCPI implicates that there is has been a steep rise in food and energy prices during the same period. However, till now, buoyancy in consumer growth has successfully negated the increase in FCPI. The Polish Government has taken various initiatives over the past two years to sustain its increase in GDP growth rate. At the same time, it has taken advantage of its healthy GDP background to launch public welfare programs. For example, the Child benefit program introduced by the Polish Government in 2017 is estimated to cost around 1.5% of its total GDP. However, such provisions in GDP would be buffered by a 0.5% increase in public spending that would stem from the reduction in minimum retirement age (OECD, 2017).
In fact, both these measures would help to address the challenges of an aging population. On the contrary, such measures would witness a more productive and healthy workforce across Polish settings. The rapid disbursements in the EU funds are expediting public investments. However, the Polish Government has also introduced stringent regulatory reforms that have improved tax compliance across concerned stakeholders. Such measures have been effective in reducing public deficits and the proportion of Government Debts to GDP. Such assumptions are supported by the data of Centralized Bank of Poland. The Centralized Bank of Poland has maintained its policy rate to a historical low of 1.5%. However, it is evident that it would tighten the regulatory policies once its debts start to increase. Such tightening cycle is mandated to address the wage pressures from a tightening labor market. The country has witnessed a radical increase in living standards of its population. Such facts are evident from increased public spending and an increase in GDP per capita. However, the Polish population is still far behind from its other European counterparts in scientific innovations, healthcare, and social protection. It is contended that innovations both in the field of science and technology, would spear the growth of living standards for the Polish population (OECD, 2017).
The Polish Government should take stringent measures in channelizing its fiscal resources that stem from GDP growth towards universities and scientific institutions. Moreover, the Government should take active interest in promoting university-public research collaborations. On the other hand, the government should attract venturing capital investments to foster research and innovation. Such policies would not only attract skilled migrants to the field of science and technology, but would address labor shortage in manufacturing and other allied fields. Once the social transfers would start to fade in Poland, the country will witness an economic slowdown. On the contrary, the economic performance and policy measures would continue to attract investments. However, there can be occasional turbulences in investment pattern due to policy uncertainty. The Polish government should take robust measures in utilizing the structured EU funds in the fields of scientific research, agriculture, and production.
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