The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
The paper aims at assessing the capital needs of Eastern Europe in catching up to EC standards of living using the framework of a CES (constant elasticity of substitution) production function model. This function, parameterized on the EC, is assumed to apply with certain inefficiency factors in Eastern Europe in 1992. Quantitative results, given the heroic set of assumptions required, are bounded by large ranges. The approach provides a framework for assessing the factors which will determine the future capital needs in Eastern Europe and underscores the crucial role of efficiency gains in this process.