State-Owned Enterprises in Emerging Europe: The Good, the Bad, and the Ugly by Uwe Böwer IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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This paper investigates the accession-related economic boom in the countries which recently entered the European Union. The analysis tests whether, on top of the standard growth determinants, the period of EU accession made a signi…cant di¤erence to the growth performance of the New Member States (NMS). The paper …nds that the period of EU accession is characterised by signi…cantly larger growth rates of per-capita GDP, even after controlling for a wide range of economic and institutional factors. This e¤ect is robust and particularly strong for countries with relatively low initial income levels, weak institutional quality and less advanced …nancial development, suggesting that EU accession has been speeding up the catching-up process and improved the institutions of the laggards among the NMS. The prospect of EU membership which has triggered large capital in ‡ows seems to have fostered economic growth of those NMS with lower degrees of …nancial depth.

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