Sustainability 2020, 12, x doi: FOR PEER REVIEW www.mdpi.comjournal sustainability Article 1 [613155]

Sustainability 2020, 12, x; doi: FOR PEER REVIEW www.mdpi.com/journal/ sustainability Article 1
Measuring the Socioeconomic Development of 2
Selected Balkan Countries and Hungary: A 3
Comparative Analysis on Sustainable Growth 4
Krisztina Soreg 1 and Guillermo Bermudez -Gonzalez 2,* 5
1 Research Fellow in the Department of Economy and Business Administration at the University of Malaga, 6
Spain ; krisztina.soreg @gmail.com 7
2 Associate Professor in the Department of Economy and Business Administration at the University of 8
Malaga, Spain ; [anonimizat] 9
* Correspondence: krisztina.soreg @gmail.com (S.K.) ; [anonimizat] (G.B. -G.) 10
Received: date; Accepted: date; Published: date 11
Abstract: The main focus of current research is to provide an extensive comparative analysis 12
regarding the s ocioeconomic development path of three selected Balkan countries – Bulgaria, 13
Croatia and Romania – as well as Hungary that is originally classified under the Visegrad Four 14
group of Central and Eastern Europe. In our paper, the Balkan states are analyzed along with 15
Hungary as it might be observed that since the 2008 -2009 economic crisis, latter economy has been 16
producing a diverging tendency from the Visegrad group in several aspects. After having 17
undergone the protracted transition crisis escalated by th e collapse of the Soviet Union, the region 18
has produced a truly contradictious development trajectory including periods of relatively faster 19
growth -based catching -up and also, significant fallbacks driven by endogenous or exogenous 20
shocks. One of the regio n’s main vulnerabilities is the relatively high dependence on FDI that 21
contributes to the fluctuating nature of economic growth and also, might be viewed as an obstacle 22
of long -term sustainable development. In frames of the study, we are presenting an alte rnative 23
comparative method to examine the actual level of development of the defined country group from 24
economic, political and social perspectives relying on the most recent data published by 25
international organizations, NGOs and think tanks. As a result, a ranking is calculated for the four 26
members taking into account their dependent market economy features and also, individual 27
patterns of economic growth. What are the main areas in which the four economies are performing 28
relatively better and in which fi elds is the group lacking potential the most? Is it possible and if yes, 29
at what extent is Bulgaria, Croatia, Hungary and Romania are still affected by the historical burden 30
of the former regime and what perspectives might they have to converge in the near future? 31
Keywords: socioeconomic development ; Balkans ; sustainable development ; convergence 32
33
1. Introduction 34
One of the most commonly made observations which become more and more actual nowadays 35
regarding the European Union’s economic development, is that the economic integration is based on 36
member states that are representing relevant heterogeneity due to several socioeconomic as well as 37
political reasons. Latter phenomenon is having a crucial impact on the long -term growth 38
perspectives of the entire regio n and the fluctuating, multidimensional development pattern might 39
be best demonstrated in countries with lower economic stability, level of development as well as 40
higher rates of inequalities compared to the centre economies of the EU. As could be detected during 41
recent 10 -20 years, in most cases economic crises originally emerged in the centre economies and in 42
form of a spill -off process, gradually migrated to the peripheries or semi -peripheries where these 43

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shocks usually had a much longer, protracted natu re in terms of time period as well as depth of the 44
crisis. Latter statement might be slightly changing in 2020 when the global impacts of the COVID -19 45
global health pandemic seem to be atypically long even in the most developed countries of the 46
world. We m ay also agree with the fact that the most volatile countries of the EU are the southern 47
economies (e.g. Greece, Italy, Spain, Portugal) as well as the broader region of Central and Eastern 48
Europe. The context may vary from country to country, yet it is ind isputable that these regions have 49
been experiencing much higher volatility towards external shocks. A tight economic integration is 50
also developing accelerating interdependence among the member states and it might be seen that 51
since the 1980s and 1990s, th ere have been decreasing growth rates across the European continent 52
[1]. According to Bartlett and Prica, centre economies are primarily exposed to stagnation becaus e of 53
the existing underconsumption that must be compensated by export revenues flowing from the less 54
developed periphery economies to accelerate growth [2]. What is more, some academic literature 55
assumes that capital inflows directed towards the peripheries or emerging economies, are excessive 56
and thus are capable of creating an economic crisis [3]. 57
The research presented in current paper is narrowing the focus of investigation on a smaller 58
country group situated at the southeastern part of the European Union, as the comparative analysis 59
is carried out in case of Bulgaria, Croatia and Romania. Based o n some earlier results, this micro 60
region is extended with one additional neighbori ng country which is Hungary [4]. In several 61
socioeconomic aspects, latter economy has been undergoing changes that are not appearing in the 62
same pace or magnitude in the three other members of the so -called Visegrad country group and 63
thus raise some doubts about its direct comparison with the Czech Republic, Poland and the Slovak 64
Republ ic [4]. On the other hand, Bulgaria and Romania have started their catching -up path from 65
relatively low initial levels strongly affected by the dissolution of the Sov iet Union and also, the 66
protracted transition crisis in the first half of the 1990s. Furthermore, Croatia might be holding a 67
comparative advantage of being a popular local holiday destination which served as a strong 68
motivation for developing its infrastru cture as well as level of services massively relying on influx of 69
tourism, however, it was officially accepted to the European Union only in 2013 as having border 70
conflicts with Slovenia. According to the World Bank’s income classification, the only econom y of 71
the analyzed group being listed as an upper -middle income country, is Bulgaria as its GNI per capita 72
is currently between $4,046 and $12,535 for the fiscal year of 2021 [5]. 73
There seems to be no compelling reason to argue that each cluster of emerging or developing 74
countries is differently integrated into world economy, has various sets of input and output factors 75
depending on social, economic and political struc ture and reacts quite diversely on such external 76
shocks as the price change of raw materials, global commercial tendencies or financial crises. The 77
2008 -09 economic and financial crisis – among several other negative effects – contributed to the 78
asymmetric growth of disparities of peripheral economies. Besides the Central and Eastern 79
European Region, countries like Greece and Portugal have also been severely affected by the 80
economic turmoil and as a result, had to apply austerity policies as well as differe nt adjustment 81
programs [6]. It is also important to examine the crisis management techniques of the nation states. 82
In case of East Asia, efforts have been taken in or der to increase export. In contrast, certain Latin 83
American economies aimed at decreasing import. Concerning latter crisis, several countries have 84
moved from liberal trade driven policies towards strongly protectionist actions [7]. When analyzing 85
the growth path of developing economies, it is a relevant question to examine whether the given 86
countries are affected by the so -called middle -income trap and thus possibly ex periencing a 87
long -term growth slowdown period. Latter episode emerging in the course of economic 88
development of certain countries might be also referred to as convergence trap. Pruchnik and 89
Zowczak define it as the selected economy’s GDP per capita level c annot produce convergence 90
towards a more advanced nation state that is used as a reference economy [8]. 91
Besides such standard approaches as the Kondratiev waves, Kuzn ets’s construction cycles, 92
Schumpeter’s creative destruction and Wallerstein’s world -system theory, there are some other (in 93
most cases completely contemporary) relevant studies and methods aiming at modelling the cyclical 94
nature of economic growth. 95

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Regarding economic growth approaches, we have to highlight the results of Ferenc Jánossy, a 96
Hungarian researcher from the second part of the 20th century, whose famous trendline theory 97
states that the accumulation of human capital is the true long -term driver of economic growth. Based 98
on his previously established theory, in 1966 Jánossy prepared a forecast according to which a 99
significant slowdown in economic growth had to be expected in the 1970s, since until that time, the 100
Hungarian economy had achieved such a level of development where it would have been in the 101
process of gradual economic growth in case of no damage related to World War II. According to the 102
theory, a post -war economic boom does not end when production achieves its pre -war level but 103
rather wh en the volume of output corresponds to the trendline of long -term economic development. 104
In other words, if a given economy’s development had been stable before the war, the pre -war 105
growth level will be achieved following the reconstruction period. However, Jánossy’s most 106
important statement is that human capital represents the essential driving force of long -term 107
economic growth. Naturally, its accumulation determines the slope of the trendline, which – 108
regarding the phenomenon of economic growth as exponen tial – is linear on a logarithmic scale 109
[9,10]. 110
Ervin Rozsnyai , a Hungarian philosopher, poet, writer and economist created the concept of 111
transnational monopoly -capitalism which is the current manifestation of the capitalist system and 112
also the third form of imperialism following the private and state monopolist pha se [11]. The 113
phenomenon was further developed among others, by Annamária Artner [12,13]. Rozsnyai also 114
presented the so -called junction -crisis which is a massive capitalist crisis that might be overcome 115
either by an internal leap – a chang e within the given socioeconomic system –, or by a systemic 116
change. It also causes the crisis of the previously dominant technological paradigm and thus the 117
institutional structure will be massively affected [11]. 118
Annamária Artner [14] argues that cycles are functioning along the same mechanism and logic: 119
during the innovation ph ase, a completely new form of technology is developed which necessarily 120
provides the innovative firm competitive advantages. As a result, the profit rate increases, and unit 121
labour costs decline. Competitors will make attempts to imitate the new approach t o extend their 122
falling market share. As next, the extensive stage is launched when innovation becomes more 123
frequent and previous technologies will deteriorate in their value as well as profit rates. So thus, the 124
long waves are strongly based on the technol ogical paradigm. However, in some cases, 125
development might progress at the same period in centre and periphery countries, e.g., bubble burst 126
leading to the financial crisis of 2007 -2008 [15]. 127
Erzsébet Szalai’s [16] research shows that the so -called new capitalism is currently in a massive 128
crisis phase. It might also be viewed as an end stage of a long wave. Latter downturn could be 129
witnessed in such regions as the Central and Eastern European economies and is provoked by the 130
region’s geographical as well as historical background. As a solution, Szalai is presenting an 131
alternative form of socialism [16]. The fact that there are more and more alter -globalist movements 132
nowadays is also showing that capitalism is producing strong symptoms of crisis. These movements 133
usually compose of young intellectuals from the developed economies which despite their 134
unive rsity education background, have not managed to find their carrier path in the system of 135
overproduction (of skilled labour force) and thus seek for alternative ways of utilizing their future 136
high value -added activities [16]. 137
Is it correct to assume that the broader CEE region has been still affected by the political and 138
economic transition which followed the collapse of the ‘Eastern Bloc’ and the dissolution of both 139
politically and economically weakened Soviet Union? We may suppose that it is indeed, still 140
struggling with certain consequences of the process. Kornai is providing some further evidence in 141
this aspect [17]. When socialism started to gain momentum in the region, it inherited a system where 142
there had been an abundance of certain resources, for example a labour pool that had been barely 143
utilized previously in an effectiv e mode. The flexible labour surplus represented an initial benefit for 144
the functioning of the system during the extensive growth phase. Nevertheless, the accelerating 145
growth had evaporated labour surplus turning it into an acute ‘lack’ during the intensive phase of 146
economic growth [17]. 147

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The objects of the regime change set as their mission to complete the following conditions [18]: 148
 to lay grounds of a free market that enables the free competition of products and services which 149
may thus be integral part of the global competition; 150
 to ensure free competition, the previously state -own ed assets had to be privatized in the process 151
of developing the previously non -existent entrepreneur layer and privately owned companies; 152
 to find solutions to the main aspects of the transition crisis, which was the moderate the 153
extremely high unemployment rate resulted from the massive recession, and suddenly 154
increasing social inequalities leading to a widespread poverty of the population. 155
Did the former satellite countries manage to complete their original goals set after the change of 156
the regime? Althoug h free market was established providing free competition, the level of economic 157
development has not allowed most economies to create high value added and globally competitive 158
goods. From the beginning of the 1990s, and especially after the 2004 access to t he European Union, 159
the region was practically flooded by foreign direct investments boosting economic growth and 160
attracting trans – and multinational companies. However, there was no ground for local companies to 161
mature and become internationally potent. Th e third promise was the hardest to deal with and it 162
must be said that in certain aspects, it could not have been fully satisfied yet, especially in countries 163
like Hungary. Due to several reasons, there are still many issues to worry about concerning 164
unempl oyment rates, work conditions of the labour force as well as poverty and social inequalities. 165
Income inequalities are relatively high, economic growth is unstable and the broader region of the 166
ex-satellite countries is still having a very high exposure to external shocks that are at the same time, 167
serve as obstacles to a more successful and sustainable growth path. 168
2. Materials and Methods 169
In order to reveal the regional disparities of the chosen countries, this paper is presenting a 170
multicriterial a nalysis, based on 20 individual socioeconomic and political indicators published by 171
international organizations, NGOs and other sources so it becomes possible to make observations 172
regarding the development path besides the usual and in many cases, non -informative economic 173
growth -related data that are also included in our research with a minor priority. Similar approach was 174
carried out regarding the socioeconomic impact of migration in case of Romania that examined the 175
effects of latter phenomenon on the labour market in the in the Romanian Danube Region [19]. In 176
current contribution, t he emphasis is rather put on such spheres as the business environment, 177
economic co mpetitiveness, political and press freedom, quality of life, education, innovation as well as 178
other relevant areas from the perspective of economic convergence, income inequalities and level of 179
their relative development. The study is providing an aggregat ed ranking of the four economies after 180
having listed the most recent data of the referred indices and among other results, examines the 181
weakest and strongest categories of the region. The main target is to get closer to the understanding of 182
development asy mmetries present in the given area of the European Union and to detect any positive 183
or negative tendencies over recent years that have strongly influenced their relative position and 184
economic performance. For latter, depending on the availability of data, the examined timeline is set 185
for to the period of 1996 and 2019. 186
Following the introductory thoughts which have based our filed of investigation, we are 187
presenting the main hypotheses of the research: 188
 Hypothesis 1: After the 2008 global economic crisis, Hu ngary has been showing economic 189
convergence towards the ‘Balkan Three’ – Bulgaria, Croatia and Romania – region of 190
Southeastern Europe and has been significantly falling behind the rest Visegrad economies. 191
 Hypothesis 2: Since 2007, the EU member economies – Bulgaria, Croatia and Romania – of 192
Southeastern Europe has been undergoing an accelerated economic development path 193
following their European Union access. 194
195
3. Results 196

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After having highlighted the most important theoretical approaches which investigate an d 197
explain the cyclical nature of economic growth and its direct impacts of countries’ development, in 198
current chapter we are taking a look at some of the classical means to examine economic growth 199
before presenting the alternative method of the micro regio n’s individual growth path. 200
3.1. Economic development and its main challenges in Southeastern Europe 201
3.1.1. GDP per capita growth 202
Although being far from a precise indicator for well -being, Figure 1 is illustrating the GDP per 203
capita growth between 1996 and 2019 based on the World Development Indicators data [5]. As 204
already mentioned, it might be clearly seen that after the transition crisis, Bulgaria and Romania 205
were undergoing a severe economic fallback that turned out to be much longer than in the 206
neighbori ng countries. The crisis was devastative in Bulgaria as the country was struggling with 207
hyperinflation and the collapse of the reigning government originally started as a banking and 208
financial crisis. In 1999, the country was affected by the Russ ian financial turmoil that showed its 209
first signs in 1998 and emerged due to a massive fiscal deficit, the Asian financial crisis as well as the 210
falling need for oil. Despite having a revolution in 1989, periods of very high inflation and truly 211
pessimistic perspectives for economic growth, Romania had to deal with a bit more moderate 212
outcomes of the long -lasting transition crisis and the best position had been held by Croatia until 213
1998. Following the turn of the millennium, the four counties seem to bond w ith each other 214
regarding their per capita GDP growth pattern until the 2008 -09 global economic crisis which 215
brought to the surface once again the striking differences within the region. In this case, the most 216
significant fallback was present in Croatia and Hungary going well below -5 percent in their GDP 217
per capita growth rate and, these two economies experienced the deepest double -dip recession 218
within the region. The explanation lies in the leading sectors of these two economies: Croatia is an 219
important de stination of international tourism having a relatively long coastline despite its smaller 220
population and Hungary is dominantly driven by the automotive industry strongly depending on 221
Germany. In both cases, the exact type of industries and the level of dep endence on them massively 222
contributes to the vulnerability – as consumption may dramatically decrease during a crisis towards 223
such durable goods and services – and low shock resistance of the economies. The catching -up 224
wave to the pre -crisis level continu ed with the same common tendency. 225
226

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Figure 1 . GDP per capita growth in Bulgaria, Croatia, Hungary and Romania (1996 -2020) . The four 227
economies were following a similar pattern after the turn of the millennium until the 2008 -2009 228
global crisis that shed ligh t on their individual vulnerabilities similarly to the regional shock that 229
emerged during the 1990s as a result of the dissolution of the Soviet Union. Source: authors’ 230
calculations based on the WDI (2020) data . 231
3.1.2. Net FDI inflows 232
To continue, from th e point of view of business environment it is crucial to analyze the given 233
region’s attractiveness to Foreign Direct Investment. One of the main vulnerabilities of the 234
southeastern region of the European Union is the relatively high exposure to foreign cap ital. Figure 2 235
is demonstrating the net FDI inflows as a percentage of GDP for the four economies. Following the 236
access to the EU, Bulgaria, Hungary and Romania became new and relatively popular destinations 237
for the capital inflows as they offered among ot her factors, cheap labour force and an advantageous 238
business environment in terms of regulations and tax burden. Before the 2008 -2009 financial and 239
economic crisis, Bulgaria had experienced the highest rates of FDI inflows almost reaching 30% of 240
annual GDP in 2007. The recession naturally pushed down the previously relevant volume of FDI 241
that had also strongly contributed to the increasing economic growth of the countries. Yet, what is 242
more important is that after the end of the turmoil, the former levels h ave not managed to bounce 243
back as the region has become less promising for foreign investors due to several reasons like 244
growing expenses, political instability or growing state control. To conclude, we must add that the 245
only economy that has been undergoi ng a relevant fallback in FDI inflows compared to its GDP, is 246
Hungary. 247
248
(a) (b) 249
250
(c) (d) 251
Figure 2. Net FDI inflows (as a % of GDP) by countries (1995 -2019) . (a) Net FDI inflows in Bulgaria 252
with the highest maximum within the country group in 2007 ; (b) Net FDI inflows in Croatia showing 253
the most cyclical nature ; (c) Net FDI inflows in Romania; (d) Net FDI inflows in Hungary , the only 254
economy producing constant decrease across the examined period . Source: authors’ calculations 255
based on the WDI (2020) data . 256
Figure 3 is presenting the same indicator in 4 -year intervals between 1995 and 2019 [5]. By 257
obser ving the diagram, it becomes even more obvious that the relative ability to attract foreign 258

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investment had been increasing for approximately 10 years as a percentage of Gross Domestic 259
Product and as the 2008 -2009 global economic crisis was over, the previo usly growing tendency 260
turned into stagnation. The question rises what would happen in the aftermath of the 2020 global 261
recession within the micro region. Bulgaria is once again an outlier member and if we calculate the 262
long -term average, it is also taking the first place (6.56% between 1995 and 2019) followed by 263
Hungary (3.32%), Romania (3.31%) and Croatia (3.02%). Furthermore, if we take into account only 264
the post -crisis period between 2010 and 2019 by average FDI inflow as a percentage of GDP, it must 265
be highlighted that there is only a slight difference among the ‘Balkan Three’ (Romania: 2.1%, 266
Bulgaria: 2.09%, Croatia: 2.04%) economies and Hungary is holding the last place (1.79%). Bulgaria 267
experienced a property bubble before 2008 as being an EU member w ith an easily accessible and 268
relatively cheap resort area, it had become one of the top destinations of foreign capital primarily 269
aiming at the hotel construction related investments. As the global crisis flooded the country, several 270
promising projects wer e stopped and as a result, poverty has increased since 2008 mostly because 271
construction industry is one of the main employers in Bulgaria in the category of low -skilled labour 272
force. According to a World Bank country report from 2017, “… unlike the usual u nderlying causes 273
of housing bubbles, in Bulgaria the bubble was not caused by too much mortgage credit; the country 274
continues to have the lowest share of mortgage debt among transition countries. Instead, as this 275
report will show, more fundamental housing market obstacles are at play. Sectoral distortions slow 276
the sector, increase costs, reduce employment, and contribute to the country’s inability to close the 277
income gap with the EU -28.” [20]. 278
279
Figure 3. Cumulative net FDI inflow by 4 -year intervals (1995 -2019) . It might be clearly seen that 280
following the 2008 -2009 global economic crisis, the micro region has been gradually losing its 281
attractiveness to foreign capital compared to previous period. The decrease is especially acute in case 282
of Hungary. Source: authors’ calculations based on the WDI (2020) data . 283
3.1.3. Income inequalities: t he evaluation of the Gini index 284
In the process of understanding the economic development path of the southeastern region of 285
the European Union, our third parameter is the Gini index as it is neither the very classical nor the 286
ultimately alternative way of capturing income inequalities ab out a given country. One of the 287
biggest challenges is to get appropriate data for latter indicator and in our case, we are relying on the 288
World Development Indicators statistics that – as seen in Figure 4 – are only available for certain 289
shorter periods [5]. The level of the Gini index has been the highest in Bulgaria and Romania as it 290
never went below 30 percent within the examined period. Following 2011, Bulgaria ha s been 291

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developing inequalities at a growing intensity while other countries either have stagnated or just 292
slightly undergone an increase in income inequalities except for Croatia. 293
294
Figure 4. The evaluation of the Gini index in Bulgaria, Croatia, Romania a nd Hungary between 2004 295
and 2017 (%) . Among the four countries, Bulgaria and Romania have been producing the most 296
significant income inequalities since mind 2000s. Source: authors’ calculations based on the WDI 297
(2020) data . 298
3.1.4. Economic development refl ected by relative position of local currencies 299
Supposing that in a globalized worl economy in the presence of free floating currencies and 300
high trade opennes, the long -term development perspectives of the countries are mirrored by 301
substantial changes in the value of the local currency. If there is significant progress taking place in 302
such a country, it definitely becomes more attractive to foreign investors which after a certain period 303
of time creates excessive demand for the local currency resulting in a gradual appreciation . We must 304
add that certain domestic processes are also capable of infuencing the exchange rate for example, 305
lose monetary policy and money creation. The slightly deteriorating position of the investigated 306
micro r egion might be also demonstrated by the weaking of local currencies over the last 10 years in 307
the selected countries. As Bulgaria has been operating with a fixed exchange rate since 1999 (1 EUR = 308
1.95583 BGN), it is not visualized in Figure 5 which is pres enting the change of the local currencies to 309
euro as a percentage of the 30.10.2010 level (100%). In all three economies, the local currencies have 310
been devaluated against the euro at some extent, however, the most significant decrease can be 311
observed in H ungary while the highest stability has been maintained by Croatia. Parallelly with the 312
weakening of the Hungarian forint, the nominal wages of Hungary expressed in euro are the lowest 313
in the Visegrad country group and this decreasing tendency is also suppo rting the relevance of or 314
first hypothesis which states that Hungary has been showing economic convergence rather towards 315
the ‘Balkan Three’ and not the Visegrad members [21]. 316

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317
Figure 5. The 10 -year change of local currency exchange rates compared to euro as % of October 2010 318
level in Romania, Croatia and Hungary . As it might be seen, the Croatian Kuna has been showing the 319
highest stability among the three economi es while the Hungarian forint has produced the most 320
significant depreciation compared to euro. Bulgaria is not visualized as it has been using a fixed 321
exchange rate since 1999. Source: authors’ calculations based on Excelrates (2020) data [22]. 322
3.2. Socioeconomic and political performance of the ‘Balkan Three’ and Hungary 323
After having presented the most recent as well as long -term tendencies concerning the 324
economic growth, ability to attract foreign capital as well as income inequalities in the three Balkan 325
states as well as Hungary, in what follows, we are presenting the comparative analysis of the region 326
that has been carried out as an alternative way for evaluating socioeconomic development in the 327
southeastern countries of the European Union along with Hungary. 328
The main motivation behind the developed method was to create a dataset based on economic, 329
social as well as political indicators for the lat est available period and thus, extending the traditional 330
set of tools designed to capture strictly the GDP and simply, growth related parameters of economic 331
development. On such ground, the comparison is relying on 20 individual reports, indices and 332
rankin gs published by international organizations, NGOs, think tanks or other online platforms that 333
are offering alternative approaches to the topic. Table 1 is serving as a summary of the extracted data 334
covering the alternative dimensions of relative performanc e of the economies and also, contains the 335
aggregated ranking calculated from the 80 individual results from the recent years [23, 24, 25, 26, 27, 336
28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41]. As a base of comparison, the first country l isted is 337
Hungary originally belonging to the Visegrad group, yet as expressed in the first hypothesis, is 338
showing signs of divergence from latter category and is followed by the selected southeastern 339
economies of the European Union. Among the first, Table 1 is presenting the business environment 340
related indicators as from the perspective of capital owners, foreign investors it is having a crucial 341
importance when allocating their resources to a given economy. In what follows, we might take a 342
look at corrupti on and economic as well as press freedom results since besides a relatively stable 343
business environment, latter characteristics are playing a vital role in the risks potentially imposed 344
on the investors along with such factors as the depth of democracy or the rule of law. By further 345
sophisticating the scope of available rankings, from the point of view of successful global integration 346
and competitiveness is it truly important to prioritise innovation and generally, technological 347
development as these are str ongly contributing to the long -term and sustainable economic growth of 348
a country. The final block of the table lists parameters that are associated with the quality of life, 349
education as well as level of happiness of the countries. It is obviously the most subjective group, 350

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still, to equalize at some extent the impact of the more accurate and measurable variables, the 351
subjective indicators were also added to the analysis. 352
Table 1. Comparative analysis of the chosen countries’ socioeconomic and political performance 353
Ranking Hungary Bulgaria Croatia Romania
1 Ease of Doing Business Index 2020 (of 190) 52 61 51 55
2 WEF Global Competitiveness Report 2019 (of 141) 47 49 63 51
3 IMD World Competitiveness Ranking 2019 (of 63) 47 48 60 49
4 TI Corruption Perceptions Index 2019 70 74 63 70
5 Index of Economic Freedom 2020 (Heritage
Foundation, of 180) 62 36 84 38
6 Economic Freedom of the World 2020 (Fraser
Institute, of 162) 53 32 61 23
7 EIU Democracy Index 2019 (of 167) 55 47 59 63
8 RSF World Press Freedom Index 2020 (of 180) 89 111 59 48
9 Fragile States Index 2020 (Fund for Peace, of 178) 43 45 40 42
10 WJP Rule of Law Index 2020 60 53 39 32
11 Freedom in the World 2020 (Freedom House, of
100) 86 69 56 61
12 WIPO Global Innovation Index 2020 (of 131) 35 37 41 46
13 Cisco Digital Readiness Index 2019 (of 141) 39 44 40 52
14 JLL Global Real Estate Transparency Index 2020
(of 99) 27 42 46 35
15 UNDP Human Development Report 2019 (of 170) 43 52 46 52
16 UN World Life Expectancy Ranking 2020 70 89 48 76
17 Numbeo Quality of Life Index 2020 (of 89) 43 44 23 40
18 Bloomberg Global Health Index 48 n/a 31 n/a
19 PISA Worldwide Ranking 2018 (of 77) 33 50 37 49
20 The World Happiness Report 2020 (of 149) 53 96 79 47
Average 52.8 56.8 51.3 48.9
Median 50 49 49,5 49
Rank by average 3 4 2 1
Rank by median 4 1 3 1
354
In order to prepare the aggregated ranking for the selected economies, we have calculated the 355
rank by average based on the 20 listed indicators. As a result, our research is concluding that by the 356
combined socioeconomic and political performance, among the four selected economies the least 357
instable and best performing country is Romania, the second place is held by Croatia and Hungary is 358
being followed by Bulgaria as the weakest economy of the group. It might be said that current 359
ranking is not showing a contradictious picture with the strictly GDP growth, FDI or Gini index 360
related findings, yet is having a crucial importance in revealing the pillars of relatively high or low 361
performance by different areas. By breaking down the performance to separate rankings, it might be 362
noticed that generally, the four countries are performing the worst in the following three fields: 363
 World Press Freedom Index by RSF (average: 76.75); 364
 UN World Life Expectancy Ranking (average: 70.75); 365
 Corruption Perceptions Index by Transparency International (average: 69.25). 366
There is no surprise that the chosen southeastern economies are operating r elatively weakly in 367
the above -mentioned spheres. In many cases, the serious malfunctioning of the democracy might 368
lead to such consequences as the eroding role of checks and balances, shrinking political rights, the 369
fallback of free media and also, in cert ain cases even such happenings as the state capture [42]. 370
Several studies and observations are driving attention to the fact of growing corruption and 371

Sustainability 2020, 12, x FOR PEER REVIEW 11 of 15
connected outcomes of latter in the wider Central and Eastern European region showing that the 372
phenomenon has increased (almost doubled) since 2006 [43]. All four eco nomies were listed between 373
63 and 74 places on a global level in 2019 [44]. Due to the previously low standards of living during 374
and in the aftermath of the Soviet Un ion’s dissolution, there has been a long but difficult path 375
covered by the affected economies which led to the low life expectancy of the population, massive 376
emigration tendency to more developed countries (especially from Bulgaria), poor education and 377
healthcare system and also the pattern of developing a business model based on cheap labour force 378
to attract foreign capital and thus temporarily driving up economic growth. From the other 379
perspective, the four economies are performing relatively well in the next indices: 380
 Numbeo Quality of Life Index (average: 37.5); 381
 JLL Global Real Estate Transparency Index (average: 37.5); 382
 WIPO Global Innovation Index (average: 39.75). 383
As first it might be surprising, the quality of life parameter is ranking the four countri es to a 384
solid place because the costs of living are quite cheap as compared to the European Union average, 385
so life is definitely more affordable in most categories. It also does not mean directly that the 386
available social services or other elements are fun ctioning on a high, satisfactory level. The real estate 387
market transparency might be best explained with the EU membership and all the obligations, 388
norms regarding data publishing. Lastly, innovation is also appearing among the stronger elements 389
as southea stern members of the European Union as well as from the broader perspective, Central 390
and Eastern European countries are evaluated together with their Latin American and Southeast 391
Asian global competitors and in such sense, it might be assumed that innovati on processes are more 392
dynamic in the listed EU economies. 393
If preparing the same aggregated ranking for a more extended country group of 11 chosen 394
economies of the wider Central and Eastern European region, the following results might be 395
obtained listed by their performance: 396
1. Estonia 397
2. Czech Republic 398
3. Lithuania 399
4. Slovenia 400
5. Latvia 401
6. Poland 402
7. Slovak Republic 403
8. Romania 404
9. Croatia 405
10. Hungary 406
11. Bulgaria 407
What is even more relevant, is that among the 20 socioeconomic and political indices, countries 408
which have been recently undergoi ng the weakest performance in aggregated terms, are belonging 409
to the group examined in current research (Bulgaria, Czech Republic, Hungary and Romania) in 17 410
individual cases out of the total 20. 411
4. Discussion 412
In our 21st century world economy, social, political and economic development tendencies as 413
well as power shifts have been undergoing at faster than ever rates due to the concentration of 414
globalization all across the main regions of the world. Still, it might be noticed that certain country 415
groups or individual economies have become even more vulnerable than a couple of decades ago 416
while others have managed to utilize the advantages of globalization or the access to the European 417
Union. 418
In frames of current paper, we have carried out a complex analys is of selected southeastern 419
economies of Bulgaria, Croatia and Romania by comparing 20 individual socioeconomic and 420
political indicators as an alternative method for investigating their current position, most significant 421

Sustainability 2020, 12, x FOR PEER REVIEW 12 of 15
comparative advantages as well as t he most vulnerable areas of their development besides such 422
elements as the evolution of the GDP per capita, FDI inflows, Gini index or the change of the local 423
currency compared to the euro. Within the research, we have been paying a special attention to 424
Hungary – which originally belongs to the Visegrad country group – since its growth path turned 425
out to be the most contradictious in the group. Due to certain endogen factors, its performance has 426
generally slowed down in recent years and it has also develope d a dual structure of economy with a 427
strong multinational and transnational based sector highly integrated into world economy and a 428
weak domestic market that is not competitive on international level due to low value added 429
production and the lack of high q uality human capital base. According to the aggregated ranking, 430
the best performance has been achieved by Romania which is followed by Croatia and Hungary. The 431
weakest results have been experienced by the Bulgarian economy that thus might be viewed as the 432
country facing the biggest challenges in the upcoming period. Yet, it must be also concluded that in 433
comparison to the initial position, the ‘Balkan Three’ have realized a considerable economic 434
development following the protracted and deep transition crisi s that raised in the aftermath of the 435
regime change. All four examined economies have massively benefitted from the access to the 436
European Union which among other positive impacts, channelled a relevant inflow of FDI to the 437
micro region that at the same ti me, strongly contributed to these countries’ increasing economic 438
dependence. 439
Based on the presented results, the first hypothesis originally set in this study stating that after 440
the 2008 global economic crisis, Hungary has been showing economic converg ence towards the 441
‘Balkan Three’ – Bulgaria, Croatia and Romania – region of Southeastern Europe and has been 442
significantly falling behind the Visegrad Countries, is accepted. Hungary had to overcome some 443
truly deep fallbacks during the double -dip recession following the 2008 global crisis, it has been 444
producing a general and very alarming decrease regarding the FDI inflows compared to the ‘Balkan 445
Three’ economies as well as the Visegrad Four group, its local currency has been significantly 446
weaking to the eu ro over the recent 10 years and as it has been already mentioned, it is currently 447
holding the third position in terms of the aggregated ranking among the four selected countries. The 448
second hypothesis claiming that since 2007, the EU member economies – Bulgaria, Croatia and 449
Romania – of Southeastern Europe has been undergoing an accelerated economic development path 450
following their European Union access, might be only partially accepted. Although it is indisputable 451
that the 3 countries have been gaining sev eral advantages of the EU membership and their economic 452
growth has been partially accelerating, it has developed along with increasing economic 453
dependency, lack of high quality human capital base, several economic and political risk factors as 454
well as an u nderdeveloped R+D sector. We have also demonstrated that in a broader perspective – 455
11 Central and Eastern European countries –, Bulgaria, Croatia, Hungary and Romania are still 456
positioned at the bottom of the region. 457
5. Conclusions 458
As of early 2020, the post -socialist development model in the wider CEE region is almost 459
certainly getting closer to its own limits: there are obvious reasons why the previously massive 460
growth based on FDI inflows and a relatively cheap, but still skilled labour force lost its momentum 461
after the 2008 economic crisis. Firstly, the abundance of cheap labour is already shrinking within the 462
region on one hand, due to the very low local birth rates and on the other hand, because of mass 463
emigration of mostly skil led workers and young people towards the more developed parts of 464
Europe. Moreover, immigration from other regions is insufficient to replace to net loss in workforce 465
for various reasons. These processes together initiated an increase in real wage levels, t hus reducing 466
the region’s attractiveness for low value -added activities, such as assembly departments of 467
electronics or the automotive industry and shared service centres. Secondly, regardless the lately 468
observable processes within the geographic area , for eign investors are rather interested in other 469
regions of the world economy, such as Southeast Asia and to a lesser extent, Latin America. Finally, 470
following 2021, the EU is planning to relocate significantly less subsidies towards the CEE region, 471
which use d to be one of the main drivers of local economic growth through large -scale investments 472

Sustainability 2020, 12, x FOR PEER REVIEW 13 of 15
in infrastructure and other assets. On such basis, it might be concluded that these dependent market 473
economies will have to rearrange their model of economic developme nt. Unless major changes in 474
economic policy take place, these countries will probably have to face an increased risk of 475
experiencing the middle income trap phenomenon. After having carried out an extended research 476
on the topic, it would be rational for such countries as Bulgaria, Croatia, Hungary and Romania to 477
massively invest in the further accumulation of human capital. This statement is also true in case of 478
R&D capabilities and critical infrastructure. Therefore, spending on education, healthcare, 479
innov ation and infrastructure should be a top priority accompanied by a myriad of anti -corruption 480
measures (in order to increase the effectiveness of these development programs). It would be also 481
crucial to find some sectors with relevant comparative advantages and being committed their 482
advancement. 483
What might be the next step for the analysed micro region to become a more competitive 484
country group attracting significant foreign investors but not narrowing its development path on 485
latter factor as the main strate gy setting economic growth? First of all, policy makers should 486
gradually restructure current growth scenarios by adopting a long -term approach to development: 487
instead of the continuation of promoting the region for multinational firms as a large pool of ch eap 488
labour force specializing in mainly assembling activities, economic policy should focus on the 489
increase of R+D investments as well as large -scale human capital development. We believe that the 490
main inputs are given for these intentions. Secondly, certa in economies (e.g. Hungary) should start 491
to decrease the social and political tensions developed in recent years and instead of diverging from 492
the European Union’s core policies, values and centre economies, introduce structural reforms to 493
dissolute the du al economy that is definitely functioning as a crisis phenomenon in the long term. 494
495
Author Contributions: Methodology, S.K.; formal analysis, G.B.G .; writing —original draft preparation, K.S..; 496
writing—review and editing, G.B.G . All authors have read and agreed to the published version of the 497
manuscript. 498
Funding: This research r eceived no external funding” 499
Conflicts of Interest: The authors declare no conflict of interest. 500
501
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