Good Germans Make Good Neighbors – Wealth & Prosperity in Landlocked Eastern Europe

A recent article in The Economist magazine discussed the nation of Bolivia’s fight to regain coastline that it lost to Chile during the 19th century. Bolivia is the poorest nation in South America. Reacquiring access to the sea would certainly enhance its economic situation.  The land locked status of Bolivia is a major drawback to prosperity, as it is for so many other nations. As the article points out, “With a few exceptions the world’s 45 landlocked countries are poor. Of the 15 lowest-ranking countries in the Human Development Index, eight have no coastline. All of these are in Africa, which is a poor region. But even compared with similar sea-front countries those without coastlines have lagged behind. Their GDP per person is 40% lower than that of their maritime neighbors.” This information got me thinking about Eastern Europe, specifically its landlocked countries. How do they compare economically with Eastern European countries with coastlines? Does having a coastline make a major difference in a nation’s wealth? One of the best ways of looking at this is by comparing Gross Domestic Product (GDP) Per Capita at Purchasing Power Parity (see chart below), though this is not a fool proof method, since politics, culture, and history, greatly influence a nation’s level of wealth. These are all important, but in Eastern Europe’s case, the main arbiter of wealth may also be the most obvious, a nation’s neighbors.

Map showing regional variation in European GDP (PPP) per capita in 2013 (Credit: Wikipedia)

Map showing regional variation in European GDP (PPP) per capita in 2013 (Credit: Wikipedia)

Alpine Prosperity – Austria Ascendant
There are just ten landlocked nations in Europe. This number excludes Liechtenstein and San Marino which are tax havens.  It also excludes Bosnia and Herzegovina which has a very small 25 kilometer section of coastline at Neum. This thin wedge slices Croatia into two parts, despite the fact that its population is 88% ethnic Croat, Neum is officially part of Bosnia and Herzegovina. The landlocked list also does not include Kosovo which is not recognized by all European nations as an independent state, though it has functioned as such throughout the 21st century.

By far the wealthiest landlocked European nations are Austria and Switzerland. Both of these are economic leaders in finance. With the rise of the internet and digitization of financial services they are primed to continue as such. They also both produce high quality, specialized manufactured products sought by the rest of the world. Austria is considered part of Central Europe, due to its German population and the fact that it was west of the Iron Curtain. Yet its wealth and prosperity often obscures the fact that Vienna lies further eastward in Europe than Prague. Four of the seven nations it borders, the Czech Republic, Slovakia, Hungary and Slovenia are considered Eastern European nations. Nevertheless, Austria’s ethnic and historical links with Germany have been the decisive factor in its economic growth.

Gross Domestic Product Per Capita Europe (Purchasing Power Parity)
Purchasing Power Parity estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency’s purchasing power.

Luxembourg   $112,473
Norway   $100,579
Switzerland   $81,276
Denmark   $59,129
Sweden   $58,014
Netherlands   $50,816
Finland   $49,055
Austria   $49,039
Ireland   $48,608
Belgium   $45,538
Iceland   $45,416
Germany   $45,000
France   $44,099
UK   $39,372
Italy   $34,715
Spain   $29,150
Cyprus   $24,867
Slovenia   $23,314
Malta   $22,892
Greece   $21,857
Portugal   $20,995
Czech Rep.   $18,871
Estonia   $18,852
Slovak Rep.   $17,706
Lithuania   $15,649
Latvia   $15,187
Russia   $14,591
Poland   $13,435
Croatia   $13,401
Hungary   $13,388
Turkey   $10,721
Romania   $8,874
Belarus   $7,577
Bulgaria   $7,328
Montenegro   $7,112
Serbia   $5,902
Macedonia   $4,931
Bosnia & H.   $4,620
Albania   $4,565
Ukraine   $3,930
Moldova   $2,238

Source: IMF World Economic Outlook Database

Bad Neighbors – The Cases Of Moldova & Macedonia
Of the ten European landlocked countries (Austria, Belarus, Czech Republic, Hungary, Moldova. Macedonia, Serbia, Slovakia and Switzerland) it is interesting to note that eight of these ten are considered to be part of Eastern Europe. Besides lacking an outlet to the sea, all eight have something else in common. They were all ruled by communist governments for at least forty years, falling for the most part within the Soviet Union’s sphere of influence (nations that were once part of Yugoslavia being a notable exception). This has had long lasting effects upon all of their economies. Coupled with the lack of a coastline – in which exports could more easily flow to distant markets – this has caused these countries to lag far behind the rest of Europe in economic terms. For instance, take Moldova, the poorest nation in Europe. If Moldova stood on the Black Sea, as both of its neighbors, Ukraine and Romania do, it would almost certainly have a port.

Horse drawn cart in Moldova

Getting goods to market – the horse drawn cart is a sight more common than cars in rural Moldova

As it stands today, Moldova has to rely on these neighbors for access to the nearby Black Sea. Relying on war torn Ukraine or endemically corrupt Romania is a less than an ideal strategy for prosperity. Then again, both of these nations have long stretches of coastline, but also have failed to prosper. Imagine the bureaucratic nightmare that Moldovan exporters must suffer through when trying to get their goods to port. To the southeast lies Ukraine, rife with corruption. To the southwest lies Romania which is now part of the European Union (EU). The EU has raised standards in the area, but this throws up another barrier for Moldova. No longer must they only meet Romanian standards, but also EU ones as well. Or imagine being in the position of Macedonia, with once or still hostile neighbors Greece, Albania, Serbia and Bulgaria. Being surrounded on land seems to be much worse than stranded at sea in Europe, such as the island nations of Iceland or Ireland. The main advantage of water is that the barriers are climatic not bureaucratic.

The Only Neighbor They Need – The Cases Of The Czech Republic, Slovakia & Hungary
All is not lost for the landlocked nations of Eastern Europe. A nation that does not have a coastline in Europe can at least be lucky enough to have ethnic Germans on the other side of a border. How else to explain the relative success of the Czech Republic, Slovakia and Hungary? All of these nations are EU members, with decent income levels, top performers by Eastern European standards. They are also bordered, at least on one side by a German neighbor. Slovakia and Hungary have Austria on their western borders. Not coincidentally the western regions of these nations are by far the most prosperous. The Czech Republic has the fabulous luck of bordering Germany and Austria. In the first half of the 20th century, this brought about a nightmare, now it has proven to be an economic boon.

Bratislava - Slovak capital on the edge of Austria

Bratislava the capital of Slovakia is a 15 minutes from the Austrian border – helping making it wealthy and prosperous (Credit: xlibber)

It is often said that geography is destiny. In the case of landlocked Eastern Europe this is more rather than less true, but not always so. The landlocked Czech Republic far out paces in GDP per capita a nation such as Croatia blessed with thousands of kilometers of shining shoreline. Conversely, a nation such as Belarus would probably love to do a land swap with a nation such as Lithuania. Give up a bit of marshland for a land border on the Baltic Sea. Such is the wish of many a nation with land borders on all sides. It is important to have an outlet to the sea, but not vital. Instead it is much better to have good neighbors. As the evidence shows, the best ones to have in Eastern Europe happen to be German.

 

 

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