1A COMPARATIVE STUDY OF POLISH AND BELARUSIAN ACCESSION TO BROADERINTEGRATION PROCESSES: A REGIONAL PERSPECTIVE
Andrei I. Lobatch

Poland and Belarus are bordering countries that participate in two divergent integration
processes: Poland joins the European Union, while Belarus integrates with the Russian Federation.
These integration processes have had varied impacts on the development of the regions in the twocountries. Polish regions differ a lot in their inner potential, internal and external factors that have been
facilitating or impeding the adjustment to new circumstances. Accession to the EU would bring further
challenges to regional economic performance. The impacts of the EU enlargement and the integration
with Russia have not been even in Belarusian regions as well. This study presents the comparative
analysis of the impact of the broader integration process on the development of regions in Poland andBelarus.

Regional development in Poland
Poland has 16 regions that correspond to the EU NUTS II level. In terms of territory the largest
are Mazowieckie, Wielkopolskie and Zachodniopomorskie. First in terms of population are
Mazowieckie (the capital region, 5.1 million inhabitants) and Slaskie (Poland’s biggest concentrationof old industries, 4.9 million inhabitants). The smallest in terms of population is the western region,
Lubuskie (1 mln. inhabitants). Decentralization reform in 1999 gave regional self-governments full
responsibility for economic development of the regions.

2

Figure 1. Administrative map of Poland

Table 1. GDP per capita by region in 2000 as percentage of the average.
REGION

GDP per capita, %POLAND100

DOLNOŚLĄSKIE

103.4
89.7
68.5
89.7
88.7
89.3
151.6
85.5
71.1
74.3
100.6
110.1
78.2
74.5
106.6
98.7

KUJAWSKO-POMORSKIE
LUBELSKIE
LUBUSKIEŁÓDZKIE
MAŁOPOLSKIE
MAZOWIECKIEOPOLSKIE
PODKARPACKIE
PODLASKIEPOMORSKIEŚLĄSKIE
ŚWIĘTOKRZYSKIEWARMIŃSKO-MAZURSKIEWIELKOPOLSKIEZACHODNIOPOMORSKIE

Source: Modified from Statistical Yearbook (1)Along with economic transformation and growth during the 1990s, regional and social
disparities in Poland became increasingly evident (Table 1). As can be seen from the table, in
economic-statistical terms regional differentiation in Poland is relatively weak: the ratio of GDP per
inhabitant of the poorest (Lubielskie) and the richest (Mazowieckie) region is approximately 1:2.2,
which is much less than in countries such as Italy or Spain. The poorest regions in Poland are situated3

in the eastern part of the country: Lubielskie, Podkarpackie, Podlaskie, Warmino-Mazurskie andSwietokrzyskie. Gorzelak (1994, 1999b) identified certain groups of relatively advantaged or
disadvantaged regions in Poland:(a) leaders: regions that display positive continuity: big urban centers, regions with tourist
potential;(b) winners: regions that were able to achieve positive discontinuity and left the position oflaggers to move into fast growth: the western regions that took advantage of the new markets inGermany and Austria;(c) losers: regions of negative discontinuity which were not able to sustain their traditional
leading position: the concentrations of old, obsolete industries;(d) laggers: regions of negative continuity, which could not overcome their backwardness andperipheral location, mostly located in the eastern parts of the country.
The ability of individual regions to adapt to fundamental changes in economic environment
rests on a range of issues including their socio-economic structure, level of initial development andproximity to capital and innovation as well as the way in which they are affected by national policy
decisions (Gorzelak, 1994, 1999b).
Leaders
In Poland, as in each of the six candidate countries with more than one NUTS II region, thecapital region (Mazowieckie) is the wealthiest in the country. This is a general pattern for Central andEastern Europe when significant concentration of economic activity occurs in the political centre of thecountry. Slaskie and Wielkopolskie are the only regions, apart from Mazowieckie, which are clearly
above their respective national average.
Winners
After 1989, western regions such as Welkopolskie, Zachodnio-Pomorzskie, Dolnoslaskie andLubuskie started to benefit from their position within a new European political and economic
geography. Proximity to the EU, relatively developed infrastructure and low labour costs combinedwith labor force skills all contributed to stimulate markets and encourage investment in western borderregions (Gorzelak, 1999a, 2000). Historically, these regions were always relatively more developed andduring the transformation they displayed better adaptability to the open competitive economy. Theirwealthier and more modern economic structure, better qualifications of the labor force, and better
equipment with high-quality institutional and material infrastructure made them more attractive todomestic and foreign investors. As a result, structural changes have been deeper in these regions andthe dynamics of transformation greater.
Losers4Old-industrial regions in Central and Eastern Europe are probably the regions that have been
most adversely affected by the process of economic transition. In Poland there is one region that ismost often referred to as an old industrial ‘loser’ - Slaskie. During the socialist period, this region
specialized in coal and steel production and was thus the focus of planned development and, to a large
extent, the driver of economic activity (Gorzelak, 2000). During the transformation period, the region
was severely affected by the reorientation of trade from formerly secure markets and by the reductionof subsidies. The decline in socialist-style heavy industry in particular has played a significant part inwidening regional disparities in Poland (Gorzelak, 2000).
Apart from restructuring problems, the region faces severe degeneration of the environment interms of air, water and soil pollution often associated with the scale and poor technology of former
industrial production. Major environmental problems still persist, which will add to the cost of further
restructuring and may well act as a disincentive to progress and investment (Gorzelak, 2000).
Economic reform has not led to quality investment and the development of new products andproduction methods. Since 1992 this region has been supported by subsidies, which would not be easy
to do within the EU. Restructuring of Slaskie has been very expensive and politically difficult; theregion has not yet shown any significant ability for independent sustainable development (Tarkowski,2003). The region is often defined as a stumbling block in the accession process; scholars in theEuropean Commission as well as in Poland point out that restructuring Slaskie is one of the primaryconcerns of the Polish government on the way towards accession to the European Union.
Laggers
The most economically disadvantaged regions in Poland are located at the eastern periphery of
the country (Podlaskie, Lubelskie, Podkarpackie). The comparatively unfavourable geographicallocation of those regions (proximity to economically less developed Belarus, Ukraine and Russia)
limits the opportunities for fruitful trans-border co-operation and joint economic initiatives (SadowskaSnarska, 2002). The second factor affecting the economic position of the peripheral areas is the
predominance of agriculture in the regional economy. Overall, as the European Commission points out,
agriculture in Poland is still in need of urgent structural reform to meet the current and futurecompetitive environment (European Commission, 2001).
Impact of the EU accession process on Polish regions
Polish economists have no doubts that accession to the EU would have varied impact on thedevelopment of regions. Some of the regions are well prepared to use the benefits and face thechallenges of the EU single market, while others may continuously stay at the periphery. One of themost significant challenges for Polish regions upon accession would be the ability to withstandcompetitive pressure from the EU.

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Based on the experience of the EU regional policy, the European Commission defined several
key factors of a region’s success such as the structure of economic activity (concentration of
employment in market services and/or manufacturing); the skills of the work force and its educational
level; regional accessibility and physical infrastructure; extent of innovative activity; and institutional
capacity (European Commission, 2000a). Additionally, an important indicator for Poland could be thegeography, volume and structure of regional foreign trade. It can be assumed that a region would bebetter placed to join the EU single market if it has a relatively big volume of exports to the EU, most ofwhich is taken by advanced technology products. In this study, the comparative analysis of Polishregions is based on structure of economy, foreign trade, innovative activity, and institutional capacity.
Structure of economy
The structure of economic activity in Poland differs from region to region. The eastern
periphery is characterized by a large share of employment in agriculture, forestry and fishing (Table 2).
Table 2. Employment in agriculture, hunting, forestry and fishing in Polish regions in 2001.
Regions

POLANDDOLNOŚLĄSKIEKUJAWSKO-POMORSKIE
LUBELSKIE
LUBUSKIEŁÓDZKIE
MAŁOPOLSKIE
MAZOWIECKIEOPOLSKIE
PODKARPACKIE
PODLASKIEPOMORSKIEŚLĄSKIE
ŚWIĘTOKRZYSKIEWARMIŃSKO-MAZURSKIEWIELKOPOLSKIEZACHODNIOPOMORSKIE
Source: Modified from Statistical Yearbook (1)Employment inagriculture, hunting,forestry andfishing, % of total
full-time employed
19
10
19.7
38
10.2
17.2
24.8
20.4
20
30.3
36.4
8.6
5.3
30.3
14.3
19.3
6.3

The share of agriculture in total employment is very high indeed. While on average agriculture
accounts for 19% of the labor force in Poland, in Podlaskie it is 36.4%, in Swietokrzyskie 30.3%, in
Lubelskie 38%, and in Podkarpackie 30.3%. This is one of the reasons why these regions have thelowest value added in Poland: Lubielskie 68.5%. Podkarpackie 71.1%, Podlaskie 74.3% of the Polishaverage (Horodenski, 2002).

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Reform of agriculture in the eastern peripheral regions has been an important aspect of Polishtransformation as this sector has been particularly sensitive in relation to Poland’s accession to the EU.
This sort of region is a typical objective of the EU regional policy. The experience of the Cohesion
countries shows that it has been extremely difficult, even with the use of the EU policies, to enhance
the mobility of labor and to shift the labor force from agriculture to industry or services (Armstrong,
2000). The same situation is observed in Poland (Sadowska-Snarska, 2002).
Foreign trade
Poland has a free trade regime with the EU that encompasses most industrial products. Analysisof exports shows that two western regions, Lubuskie and Wielkopolskie, are the most successful in
trade with the EU. These regions have, in general, a rather large volume of exports per capita above theaverage in Poland. Most exports go the EU and furthermore exports contain a big share of high-tech
products (Statistical Yearbook (1); Tarkowski, 2003). Pomorskie and Mazowieckie are the leaders inexports per capita and are far above the Polish average. These regions also have a big share of hightech products in their exports, but most exports go beyond the EU (this indicator is below the Polishaverage) (Statistical Yearbook (1); Tarkowski, 2003).
The most disadvantaged in terms of exports is the eastern periphery: Podlaskie, Lubielskie,
Podkarpackie, Malopolskie. These regions have the lowest volume of exports per capita in the country,
very little of which goes to the EU (the lowest level in Poland), and the regions also have the lowest
share of high-tech products in their exports (Statistical Yearbook (1); Tarkowski, 2003).
Innovative activity
As mentioned, innovative activity is quite an important indicator to estimate a region’scompetitive ability because the generation and adoption of innovations is one of the major factors that
stimulate economic growth. In statistical terms, innovative activity may be estimated by two mainindicators: R&D expenditure per capita and the share of employment in the R&D sector in total
employment. Of course, these indicators do not give a full picture of the relative innovative potential of
the regions, but they may give an idea of how different regions treat innovations. According toTarkowski (2003) and Statistical Yearbook (1), the largest R&D expenditure per capita is in
Mazowieckie, the capital region. Relatively high indicators are in Lodzskie, Malopolskie, Dolnoslaskie,
and Pomorskie. The lowest levels of R&D expenditure are in the interior and the eastern periphery:
Opolskie, Swietokrzyskie, Podlaskie, Lubelskie and Podkarpackie (Statistical Yearbook (1); Tarkowski,2003). The following table shows the relative employment in the R&D sector by region:
Table 3. Regional R&D employment in 2001 as percentage of total employment

7
REGIONR&D EMPLOYMENTPOLAND

0.88

DOLNOŚLĄSKIE

1.01
0.60
0.74
0.39
0.77
1.16
1.69
0.48
0.53
0.51
0.83
0.76
0.24
0.45
0.92
0.62

KUJAWSKO-POMORSKIE
LUBELSKIE
LUBUSKIEŁÓDZKIE
MAŁOPOLSKIE
MAZOWIECKIEOPOLSKIE
PODKARPACKIE
PODLASKIEPOMORSKIEŚLĄSKIE
ŚWIĘTOKRZYSKIEWARMIŃSKO-MAZURSKIEWIELKOPOLSKIEZACHODNIOPOMORSKIE

Source: Statistical Yearbook (1)As can be seen in the table, the eastern regions have very low levels of R&D employment. This groupof regions extends to the western region, Lubuskie, that has one of the lowest indicators in the country,
and the south-central region, Opolskie.
Institutional capacity
Tarkowski (2003) made a synthetic estimation of the institutional capacity of Polish regions. It
has been recognized by academics and policy-makers, supported by EU evidence and economic
theories, that institutional capacity has been one of the most important intangible factors that define theabsorptive capacity of the economy, as well as the efficiency of the Structural Fund allocations ingeneral. For example, the implementation of the EU regional projects in Greece was always stumblingover an extremely inefficient bureaucratic system within which the money did not target the mostneeded areas (Financial Times Surveys, 2000). The highest institutional capacity, according to Polishscholars, exists in the following regions: Zachodnio-Pomorskie, Lubuskie (western Poland), Opolskie
and Slaskie (south-western Poland). The lowest institutional capacity is in the eastern part of thecountry (Podlaskie, Lubelskie, Warminsko-Mazurskie) and in some central regions (Lodzkie andSwietokrzyskie).
In addition to the above indicators, attraction of investments may give another picture of
regional performance. In general, FDI has been one of the most important factors of accelerated
economic growth in Polish regions. According to Statistical Yearbook (1), the western regions

8(Lubuskie, Zachodnio-Pomorskie, Wielkopolskie, Dolnoslaskie and Pomorskie) and central regions(Mazowieckie and Warminsko-Mazurskie) have the biggest share of FDI in the regional economy. The
lowest levels of FDI are in Podlaskie region; the lowest levels of FDI from the EU are again in the
Polish east – Lubielskie and Podkarpackie.
Polish researchers rank the investment attractiveness of the regions as follows:
RegionMazowieckie, Śląskie
Wielkopolskie, Pomorskie, Dolnośląskie,
Zachodniopomorskie
Małopolskie, Lubuskie, Łódzkie,
Kujawsko-Pomorskie, Opolskie
Warmińsko-Mazurskie, Podkarpackie,
Podlaskie, Lubelskie, Świętokrzyskie

Comparative
investment rank
A
B
C
D

Source: Tarkowski, 2003
The most attractive for FDI in Poland are the capital region and the western regions. Slaskie has
not benefited from significant FDI inflows yet, but may become attractive for investments as it has adeveloped (though old) infrastructure, a relatively high concentration of labor, and many old factory
premises. The eastern periphery has the lowest comparative attractiveness for potential investors.
As the above analysis shows, Poland has regions that are relatively better prepared for theaccession and would probably obtain bigger benefits from joining the single market, as well as regionsthat would probably have more challenges than advantages. The western and southwestern regions
along with the capital region have shown the fastest pace of transformation and economic growth. The
eastern periphery, Warminsko-Mazurskie, Podlaskie, Lubelskie, Podkarpackie and the central
periphery, Swietokrzyskie, may well have difficulties in adapting to the new circumstances of theenlarged EU. These regions have relatively high share of employment in agriculture at the expense ofindustry and services, the lowest GDP and value added per capita, the lowest levels of trade with theEU, little direct foreign investment (and the lowest investment attractiveness), the smallest share ofhigh-tech exports and R&D expenditure, and the lowest institutional capacity.
The old industrial region, Slaskie, is still not well placed to face the competition from the EU.
Although the major indicators show a rather favorable position in comparison to the other regions,serious structural problems still persist. This region has been acquiring the largest amounts of subsidies
in Poland, which helped to slightly increase exports, investment and income levels in recent years(Kozak, 2000). The major exporters are still traditional industries, coal mining and steel production inparticular, which would hardly have any significant growth potential after the accession. Polishscholars state that many companies are on the brink of bankruptcy and the privatization process has

9been very slow (Tarkowski, 2003). It has been a big problem for the government to sell old worn-out
factories. A positive trend have nevertheless appeared: a few machine-making investors establishedtheir factories in the region and added modern machinery to the traditional structure of exports (Kozak,
2000). Only if this trend is strengthened after the accession, would the region have chances toparticipate successfully in the EU single market.
In total, the backward regions in Poland comprise around 30% of the country’s territory and34.1% of the population. Widening regional disparities in Poland are an unavoidable consequence ofthe process of transformation and economic growth. Theories of regional development argue thatpolarization of economic activity is an inevitable process and convergence in terms of GDP per capita,
even if it occurs automatically, would be extremely slow. Krugman’s core-periphery concept (Krugman,1991) and the evidence from the EU member states suggest that inter-regional disparities within the
single market have a strong tendency to grow, and Poland would probably be affected by this process
as well. In general, the EU accession process has been quite beneficial to the whole country. Until 2002,
economic growth occurred in all Polish regions, although its intensity varied from region to region. The
difference in pace of economic development was the main reason for widening disparities in the 1990s,
although these have not yet become enormous. Accession to the EU would place a strong competitive
pressure on the country’s economy, and peripheral regions would probably face many more difficulties
than before. The competitive capacity of a region would largely define its future economic growth.
Polish scholars and policy-makers agree that joining the single market may leave backward regions
even more worse off, and a backwash effect is more likely to happen after accession than a spread
effect (Banski, 2002). This means that the periphery would continue to be drained of the most skilledlabor force and capital and would therefore permanently lag behind. Given these circumstances, it isstill admitted that after joining the EU Poland would have to focus on catching up with the EU member
states rather than on combating regional disparities inside the country.
Potential challenges of the EU regional policy
Membership in the European Union will bring Poland one of the most attractive benefits:
eligibility for the EU regional policy. The policy is expected to combat growing regional disparities.
The structural funds that would be allocated in Poland might amount up to 4% of the country’s GDP.
The EU money has both economic and political weight and needs to be spent wisely in order toproduce positive economic and social effects.
The EU experience shows that the regional policy has been very far from being a perfectweapon against regional inequality. Paradoxically, even though the regional policy by now has ahistory of 26 years, its rationale and efficiency are still not clear and are always questioned by scholars.
Only one thing is apparent: the EU regional policy does not bring any radical changes in the pattern ofregional economic growth (Dunford, 2000; Allen, 2000). In addition to ambiguous economic effects,

10

the policy has a strong political content in relations among the member states, between the European
Commission and the member states, as well as among the regions within the member states (Allen,
2000). As it appears, the Commission does not have enough power to enforce effective implementationof the regional policy. Latest statistics from the regions shows that two opposite processes have been
happening in the last nine years: convergence in GDP per capita among the member states anddivergence in GDP per capita among the regions in the EU (Dunford, 2000). Therefore, the policy has
been continuously questioned by some scholars as to whether it should be considered as an economic
instrument at all. The experience of the Cohesion countries, Ireland and Greece in particular, showsthat the EU structural funds may become merely a catalyst of domestic macroeconomic policies(Financial Times Surveys, 2000; Barry, 2000).
The basic framework of the regional policy cycle in the EU is quite complicated, but in reality it
becomes even more confusing. Gradually the linkages and interlacing between three different levels ofpolicy-making (EU, national and regional) increase. As, for example, the Spanish experience shows,
this leads to two sets of negative consequences. The first one is quite apparent: non-transparency ofdecision-making, the resulting lack of political accountability, and corruption. The second consequenceis much less evident but very bitter - the threat of political deadlock (Amodia et al, 2001).
The principle of partnership, which is one of the rules of the EU regional policy, would bring to
the decision-making process the European Commission, the central government, the regions, andmunicipalities. In these negotiations each group of regions would probably have its own economic
reasoning: the fast-growing regions would support the direction of funds into the most productive areas
and block allocation of transfers to the ‘lazy’ east (Podlaskie, Lubelskie, Podkarpackie) or inefficientsoutheast (Slaskie). The poor regions would obviously strive for funds for the simple reason that they
are poor and need support. These sorts of contradictory arguments known as the equity-efficiency
dilemma exist today, only a few years after the decentralization reform (Banski, 2002). The multiple
negotiations consisting of the Commission, central government, regions and, possibly, municipalities
may cause a “joint decision trap” which might block the efficient allocation of funds when therecipients of the money finally become rich individuals in poor regions – a phenomenon known in the
EU (Amodia et al, 2001). Bringing cities and municipalities to the negotiation table, according to thepartnership principle, improves the quality of the regional policy because of better targeting. But again,as the EU experience shows, this can make the decision-making process even more difficult andenhance the threat of a political deadlock.
The Polish regions’ relative autonomy, which is considered to be so positive now, has alreadyled to differences in the quality of management, use of regional potential, and general economic
development. As a result, some regions became more influential than others. Currently, Polish regional
policy is not explicitly shaped. It is still a debate on equity-efficiency dilemma; the policy is balanced
between a liberal approach, i.e. minimum government intervention and decentralization of

11

responsibility for economic development on the one side, and government interventions primarily bymeans of subsidies and state aids on the other (Gorzelak, 2000; Swiatek, 2002). It is a question how
these relations will work when the central government would need to distribute the money from the EU
Structural Funds. Would not this regional autonomy generate severe bottlenecks and block efficient
allocation of the EU transfers? The situation would become even more tricky because probably all
Polish regions would be qualified as Objective 1 status and therefore be eligible for equal funding
regardless of inter-regional disparities.
The money that the country would finally get could be allocated in three main different ways: it
could be equally distributed among the regions (if all of them will qualify for Objective 1 status), it
could be directed to poor regions, or it could be invested in the richest, most productive regions. All ofthese strategy options have their pluses and minuses, and the definition of an optimal policy thatsatisfies all economic, political and social considerations remains a difficult task. The most difficult
decision in this respect would be the balance between the equity and efficiency principles of thestructural funds allocations.
Political and social considerations, as well as the current practice of the EU would be in favor ofequity - allocation of funds to the backward regions as a policy of social solidarity. On the other hand,
economic rationale, which is backed by theories and the EU evidence, would be in favor of efficiency allocation of funds to the advanced, most productive regions. In this case, the well-performing regions
may become locomotives of growth and simply continuously pull the lagging regions behind. The EU
evidence suggests that allocation of money to poor regions does not bring any significant catch-up
effect and that the money is usually wasted. While academics promote the efficiency approach, thePolish government would probably try to find a balance between the two options and the final strategy
would not be clear-cut. Analysis of the theory and practice in the EU suggests that the best policy is thepolicy of not relying on the structural funds at all. The government should not strive for the maximum
amount of the EU money but rather attract investments and pursue tight fiscal discipline.
The major lesson for Poland is that any redefinition of regional policy towards greater targeting
could be expected to meet resistance, and would therefore be incremental and difficult. Whether the
Polish government will opt to monitor the whole process of the structural funds allocations or will
leave it to political bargaining depends completely on the country’s choice. But if the country is simply
aware of all major political problems accompanying the EU’s regional policy and of the fact that the
EU’s involvement in combating regional disparities may actually increase them, the country would
treat the Union’s participation very cautiously and provide its own efforts to solve these problems.
Cross-border cooperation
Apart from the Structural Funds, eastern Polish peripheral regions may obtain EU support forcross-border activities. Since 1991, Poland has created ten euroregions with the neighboring countries

12(Figure 2). Euroregions are defined as transnational formations consisting of bordering regions ofneighboring states. They have been one of the most important instruments of the integration process in
Europe. The European experience shows that euroregions can become an efficient mechanism tointensify cross-border cooperation. The major task of the euroregions is the coordination of activities tosolve problems of multilateral concern to the participating countries. Usually euroregions help tofacilitate cross-border trade and cultural exchange, prevent environmental problems, increase tourism,and develop cross-border infrastructure. One of the biggest motives for regional administrations is theavailability of EU funds to co-finance activities that involve partners within a euroregion.

Figure 2. Map of euroregions on the borders of Poland
Polish cross-border partners in the east are the neighboring regions of Belarus, Lithuania andthe Ukraine. Regional administrations in eastern Poland have been seriously considering theopportunities arising from the euroregions as they helped to attract the EU funds (PHARE CBC inparticular) for various initiatives (Horodzenski, 2002). Analysis done by Polish economists (e.g.,
Komornicki, 2002) shows that the eastern euroregions have not yet helped to increase the volume ofcross-border trade. Nevertheless, the projects carried out in the euroregions helped to improve thetourist potential in some places. Most probably, after accession, the EU would increase the funds forcross-border cooperation since the Polish border would become the border of the EU. This could be
one of the other benefits which the eastern regions may obtain upon accession that may soften theconsequences of the growing interregional gap.

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Regional development in Belarus
The Republic of Belarus consists of six regions. The smallest in territory is the Grodno region(25 thousand sq. km) and the largest is the Gomel region (40.4 thousand sq. km). The difference inpopulation is not very large. Gomel has 1,527,500 inhabitants, while the Mogilev region, the smallest
in population, has 1,191,800 people.

Figure 3. Administrative map of Belarus

Table 4 . Employment by major sectors of economy in Belarusian regions in 2001, %1.
Regions Brest

Vitebsk Gomel

Grodno Minsk

Mogilev

Sectors of economy
Industry
Agriculture
Trade and public catering
Transport
Construction

24.2
18.8
10.5
7.3
6.3

26.5
14.4
10.0
6.2
7.0

28.8
13.1
10.7
6.1
7.1

25.3
19.9
10.0
4.5
6.4

27.4
19.3
9.7
3.7
7.1

29.5
13.9
9.7
5.6
6.0

Source: Modified from Statistical Yearbook (2)1

To have more precise results here and later, the capital city, Minsk, is excluded from the statistical analysis.

14

The Belarusian regions are very similar in economic structure (Table 4). As shown in the table,
the biggest part of the labor force in all regions is employed in industrial production. Agriculture
accounts for between 13 and 20 % of the employed. This more or less equal structure of the economy
in all the regions appeared during the Soviet period when the industrial production was centrally
planned. Factories were located in various regions according to strategic and geopolitical but noteconomic reasons. In the 1970s to ‘80s Belarus became the “assembly workshop” of the USSR. Many
giant factories were built in the regions to serve the needs of the whole country. The break-up of theSoviet Union had severe consequences for the Belarusian economy because most of the former
industrial connections were broken and those giants had to work at half or even a third of their original
capacity. This was one of the motives of re-integration with the Russian Federation in the mid-1990s(Tarasevich and Lobatch, 2001).
Unlike in Poland, the Belarusian regions have a smaller share of employment in agriculture.
The agricultural sector is almost 100% state owned and the old Soviet-style collective farms have beenpreserved. For the last ten years, the efficiency of Belarusian agriculture has been continuously
declining, which has led to a situation where 80% of the farms appeared to have enormous debts. The
government has been heavily subsidizing the agricultural sector, but no reforms have yet been
introduced. As a result, the costs of agricultural production—of foodstuffs in particular—have increased
to a level higher than that in Russia, the Ukraine or Lithuania. In many cases, foodstuffs imported fromthose latter countries are cheaper and of better quality than the local products. Such a situation had
never happened before. During the last eight years, most of the rural population has been living inpoverty and, therefore, the outflow of the labor force to the urban centers has been very intense(Statistical Yearbook (2)).
Traditionally, the western regions of Grodno and Brest had a much more efficient agricultural
sector. The volume of agricultural production per capita has always been bigger in the western than in
the eastern regions (Statistical Yearbook (2)).

Table 5. Main branches of industry in Belarusian regions, share in total volume of production in 2001
(%)2.

2

Brest

Vitebsk

Gomel

GrodnoMinsk

Mogilev

Food (30.9)

Fuel (21.3)

Fuel (21.0)

Food (28.2)

Chemicals andpetrochemicals(32.2)

Chemicals andpetrochemicals(29.0)

Branches of industry are defined according to Belarusian statistics. The table contains only those branches that have morethan 10% in total regional production.

15
Engineering,machine-building
and metal working(22.4)
Light industry(14.5)

Electric power(18.9)

FerrousChemicals (23.6)
metallurgy (16.9)

Food (15.9)

Woodworking, pulp
and paper (10.9)

Light industry(12.3)
Chemicals andpetrochemicals(12.1)Engineering,machine-building
and metal working(15.0)
Food (14.7)

Engineering,machine-building
and metal working(13.1)

Food (23.1)

Engineering,machine-building
and metal working(16.3)Engineering,machine-building
and metal working(21.0)

Food (15.6)

Electric power(10.7)
Light industry(10.5)

Source: Modified from Statistical Yearbook (2)Although the economic structure of the Belarusian regions is quite similar, the structure of theindustry is somewhat different. As shown in Table 5, the fuel, chemical and petrochemical, and foodindustries occupy the biggest shares of production in the regions. Although machine-building and metal
working have a relatively big share of the total production of the regions, the economic situation in thissub-sector resembles the situation in Slaskie in Poland. Most of the companies are inefficient, theequipment is 80% worn out, and no reforms, including privatization, have been introduced. The longer
these companies stay in the property of the state, the fewer chances there would be to attract investors.
A big share of this sub-sector of the regional economy is rather a potential burden than an advantage.
The chemical, petrochemical and fuel industries are the only ones that maintain relatively highlevels of efficiency. The companies are quite attractive for Russian investors, and the process ofprivatization in these sub-sectors has been commenced recently.
Unlike in Poland, regional disparities in Belarus, according to the official statistics, areextremely small. Average incomes and GDP per capita are almost equal in all the regions. Excessiveintervention of the state into the economy and the extremely low share of the private sector (less than
5% of the country’s GDP) distorts the real state of affairs. Many state owned companies andagricultural farms have been heavily subsidized from the state budget which has kept them away from
inevitable bankruptcy. One of the indicators that may show the potential disparities in the Belarusian
regions is the number of the loss-making enterprises (Table 6).
Table 6. Share of loss-making companies in all sectors of the economy of the regions in 2001 (%).
Brest

Vitebsk

Gomel

GrodnoMinsk

Mogilev

28.9

45.4

41.5

32.3

37.1

47.1

Source: Statistical Yearbook (2)16

In the western regions, Grodno and Brest, the share of loss-making companies in all sectors of
the economy has been the smallest. Traditionally, most subsidies from the state budget have been
directed to the Gomel and Mogilev regions. This may indicate that the western regions arecomparatively more developed. The share of direct foreign investment in total investments in thoseregions has also been comparatively higher. It comprised 2.5% in Grodno and 2.3% in Brest, while theshare of FDI in eastern regions such as Vitebsk and Mogilev was just 0.8% and 0.2% respectively(Statistical Yearbook (2)). In general, Belarusian officials and scholars state that the Belarusian
economy suffers an investment crisis. The total flow of FDI in recent years has been extremely small,and even the free economic zones that were created in every region did not help to attract moreinvestment (Zaiko, 2003).
The structure of foreign trade in the Belarusian regions is also similar: 50% or more is donewith Russia. The share of the EU in total Belarusian trade in 2001 was 12%; five percent of the total
turnover was with Germany. The candidate countries embraced 11.8% of total foreign trade in 2001.
The biggest partners among the candidates were Poland (3% of total turnover), Latvia (3%) and
Lithuania (2.5%) (Statistical Yearbook (2)).

17

Table 7. Cross-border trade of Belarusian regions in 2001, %.
Regions Brest

Vitebsk Gomel

Grodno Minsk

Mogilev

Neighbouring states
Russian Federation
turnoverexports
imports

52,93
72,22
30,77

55,12
47,39
64,65

49,60
39,43
63,78

49,66
51,90
46,81

44,88
39,02
53,95

73,67
75,83
70,94

Ukraineturnoverexports
imports

4,25
4,28
4,21

6,26
8,05
4,06

7,81
9,09
6,03

6,00
4,30
8,15

4,17
3,86
4,64

3,57
3,67
3,44

Polandturnoverexports
imports

6,63
1,53
12,50

1,71
2,20
1,11

5,38
7,66
2,20

9,03
11,57
5,80

3,62
3,97
3,08

1,47
1,84
1,01

Lithuania
turnoverexports
imports

1,48
1,71
1,23

5,76
8,97
1,81

1,14
1,60
0,51

6,98
11,25
1,56

2,25
1,82
2,91

1,37
1,61
1,07

Latviaturnover 0,62
9,47
exports 0,72
16,69
imports 0,51
0,58
Source: Modified from Statistical Yearbook (2)

2,75
4,60
0,17

2,31
3,68
0,57

0,56
0,66
0,40

0,50
0,73
0,21

The Mogilev region (Table 7) has the biggest share of trade with Russia (74%). The westernregions, Grodno in particular, have the biggest share of trade with the neighboring candidate countries.
As shown in the table, Vitebsk and Gomel have a relatively big share of exports to Poland, Latvia and
Lithuania. The major export to these countries is oil-based products (Statistical Yearbook (2)).
Therefore, the volume of exports from these regions is very fragile as they depend on oil prices fixedby Russia. If for any reason Russia raises the oil prices for Belarus, Vitebsk and Gomel exports to thecandidates would drop.
It should be noted that the western regions have unregistered (or “gray”) flows of imports from
Poland. These mainly consist of light industry products, clothing and footwear in particular. Private
traders simply carry those in bags through the border to avoid very high customs duties. This sort oftrade became a popular source of income for many inhabitants in Grodno and Brest as well as asignificant part of the economy in those regions (Zaiko, 2003).

18

Impact of the integration processes in Europe on Belarusian regions
In general, the position of Belarus within the integration processes in Europe is quite peculiar. It
is schematically shown in the figure below:

EU

PolandBelarus

Russia.
Figure 4. Belarus in European integration process
Belarus is affected by the two major integration processes: one is the enlargement of the EU, the otherintegration with the Russian Federation. Economic and political forces in Poland, the western neighborof Belarus, are directed westwards, to the EU. The forces in Russia, the eastern neighbor, are also
largely directed towards closer integration with Western Europe. Recent events and agreements (theKaliningrad question, energy supplies, trade issues, etc.) show that Russian leadership has been very
successful in building fruitful collaboration with the EU. Unlike its neighbors, Belarusian political andeconomic forces are directed eastwards. Only two western regions that culturally have more incommon with Western Europe (Poland in particular) than with Russia have some forces that push thecountry towards the west. The position of Belarus therefore contradicts the on-going processes in
Europe.
The impact of EU enlargement on the Belarusian regions
Trade and investment flows show that economic interdependence between the Belarusian
regions and the candidate countries is quite weak. Therefore, the accession of Poland, Lithuania andLatvia to the European Union would hardly make a significant impact on the Belarusian economy ingeneral, although, as Belarusian experts claim, some strategic markets for certain major Belarusian
exports would probably be lost. Nitric and potash fertilizers that are now exported to Poland may be
faced with the EU antidumping duties upon accession (Rudenkov, 2003). Belarusian trucks that are
currently widely purchased by Latvian companies most probably would not meet EU standards andwould have to leave this market as well (Bogdankevich, 2002).

19

The EU enlargement may significantly affect only the western regions, Grodno and Brest,
because they have stronger ties with the candidates (Poland in particular). The impact of the EU
enlargement in the western regions would be defined by the following factors:
1. Introduction of Schengen visas to enter Poland.
2. Development of border infrastructure; modernization of old border crossings and thebuilding of new ones.
3. Activities related to the EU regional policy in north-east Poland; investments from theStructural Funds.
4. Development of trans-border co-operation in the “Bug” and “Neman” euroregions.
5. New neighborhood policy of the EU.
Introduction of Schengen visas
The introduction of Schengen visas to enter Poland is often said to be the first negative factor of
EU enlargement. This measure would mainly affect the western Belarusian and the eastern Polishregions. As mentioned above, many Belarusians who live in the border regions have been involved incross-border trade, and many small businesses in eastern Poland have been serving those trade flows.
During the last ten years, the cross-border trade became one of the significant sources of income forcertain companies in Poland, and, to a much larger extent, in Belarus. Therefore, the planned
introduction of visas aroused many fears among the population in border regions of the two countries.
Analysis of this issue shows that the impact of the new border-crossing procedures on theeconomies of the Polish and Belarusian regions is very difficult to estimate. Currently it is agreed thatthe single entry visas to Poland (and, accordingly, to Belarus) will cost E10, and the multiple entry
visas valid for one year E50. It should be said that the Polish government suggested mutually issuingvisas free of charge but the Belarusian government refused this (Romanchuk, 2003) . In any case, thecost of a visa would not become a serious obstacle for Belarusians if they decide to travel to Poland. As
for regular visitors such as private traders, E50 a year would be insignificant among other expenses.
What is more important is the procedure of how the visas would be granted. If Poland applies
the criteria used by the current Schengen states (official invitations, proof of financial self-sufficiency,
and a bureaucratic routine at the embassies that cause long queues) cross-border mobility would
decrease significantly and the cross-border trade would slow down. The inability of Polish authorities
to establish an efficient visa procedure was probably the reason why the introduction of visas for
Belarusians was postponed until October 2003. The declarations of EU officials and representatives of
the Polish government underline that visas aim at ordering the border crossing and would not impede
the movement of people. If these declarations match the reality, the introduction of visas would not
make any significant impact on regional dynamics either in Poland or in Belarus.

20

Infrastructure development
A positive trend in border-crossing issues related to the EU enlargement is the development ofborder infrastructure, including the modernization of old border crossings and the building of new ones.
The EU finds it very important to keep its external borders transparent and efficiently managed.
Therefore the Union has been financing modernization of its future borders via pre-accession aid in
Poland and the TACIS program in Belarus. New terminals and infrastructure are being built, whichshould at least decrease the queues at the border. Supposedly, the trade flows between the two countries
would become more intense, although any estimation is very hard to make as other factors (e.g. trade
regime and business climate) would be crucial.

Only if the Belarusian government creates theconditions by which Belarusian territory would become an efficient transit corridor for goods deliveredfrom the EU to Russia and back, would the developed border infrastructure become a significant factor
in the development of the western regions.
The EU Structural Funds in North-East Poland
It may be anticipated that activities related to the EU regional policy in north-east Poland and,in particular, investments from the Structural Funds would have spillovers to Belarusian territory. The
major aim of the EU regional policy is the intensification of economic activity in regions that lag
behind. This is done by investments to infrastructure development, training and re-training programs aswell as the development of small businesses. It is now very hard to estimate the potential effects of the
EU regional policy in Poland, because detailed programs and financial plans are still being worked out.
In the optimistic scenario, the efficient actions of the Polish authorities and the EU institutions would
help to induce faster growth in the eastern Polish regions, and new businesses in search of better
opportunities would invest in bordering Belarusian regions. Indeed, the labor force in Belarus isrelatively cheap and well trained. In the western regions people speak Polish and the free economic
zones that exist in the bordering regions may become very attractive for investors. If this optimistic
scenario would come to fruition in the years following 2004, the western Belarusian regions would
receive a strong positive impulse caused by the EU enlargement.
Cross-border cooperation
Belarus participates in two euroregions, “Bug” (established in 1995) and “Neman” (establishedin 1997). Along with the two western Belarusian regions, Brest and Grodno, the euroregions
encompass bordering parts of Poland, Lithuania and Ukraine. Belarusian partners have participated in a
few common projects. For example, in the “Neman” euroregion these included: 1) creation andnetworking of the Belarusian office of the “Neman” euroregion in Grodno (common budget E196,928);
2) creation of a consulting service on small business development in Novogrudok, Belarus (common
budget E239,600); 3) training program on cross-border transport management and logistics (common

21budget E175,200); 4) regional development and environment in the “Neman” euroregion (common
budget E989,560)3.
Officials from the Belarusian and Polish sides state that the “Bug” and “Neman” euroregions
have had very low efficiency in reaching their declared aims, in particular, in development oftransnational co-operation (Komornicki, 2002). One of the reasons for this is the opposing politicaltrajectory of the Belarusian leadership. In the existing circumstances, collaboration with the western
European countries is not a priority, and relations with the EU are more antagonistic than just cold.
Secondly, decision-making in Belarus is very centralized so that regional and local governments are
extremely limited in their actions. The majority of strategic decisions about intra-regional development
have to be taken by the central government or require a long procedure of agreement with all kinds ofcentral authorities. Such circumstances erode the initiative of the regional and local governments tocarry out activities offered by the Polish and Lithuanian partners in the euroregions.
Nonetheless, the euroregions give the EU an opportunity to engage Belarusian regional elites incloser relations via cross-border cooperation initiatives. This becomes very important since thePartnership and Cooperation Agreement between Belarus and the EU was frozen in 1997. EU supportof the cross-border initiatives would grow as both Poland and Lithuania would become eligible for
INTERREG (Strand A in particular) and related programs (European Commission, 2003). Since 1994,
Poland obtained E311.15 million for cross-border cooperation and after accession these funds would be
increased (Sadowska-Snarska, 2002). Belarusian partners would probably not be eligible for
INTERREG, but can be supported by TACIS Cross-Border Cooperation schemes.
There is a possibility that enhanced attention to the future neighbors of the EU would increase
the amounts spent for cross-border co-operation as well as stimulating the Belarusians to take an active
part in the projects. The major effects of collaboration within the euroregions could be:•

development of technical infrastructure, particularly in the cross-border area•

development of social infrastructure, cultural and educational exchange•

environmental safety and better spatial planning•some growth of cross-border trade and investment•

growth of tourism

These potential effects would occur in western Belarusian regions, but the spillover to other regions
would probably be minor.
The EU New Neighborhood Policy

3

Data obtained from the Office of the “Neman” Euroregion in Grodno.

22

One of the most important factors that would define the benefits and threats of theenlargement to neighboring states would be the future EU policy towards those neighbors. The
European Commission proposed a framework for the so-called “New Neighbourhood Policy”, which
outlines the future relations with the new neighbors of the EU. This document underlines theimportance of EU involvement in building fruitful collaboration with all neighboring countries, and, inparticular, Russia, the Ukraine, Moldova and Belarus (European Commission, 2003). As stated in the
document, the Union is keen to support the development of a stable market economy, the rule of law,efficient administration, a clean environment, security, and other issues. Within this policy, the EU isable to go as far as offering full participation in the single market (free movement of goods, services,
capital and labor) without membership (European Commission, 2003).
The Commission stipulates that for Russia, the Ukraine, Belarus and Moldova, community,
EBRD and European Investment Bank (EIB) supported initiatives should be further developed. Whilethe central role played by the EBRD should continue to be supported, the EU could also consider the
progressive and targeted increase of EIB lending to Russia, and its extension to the Ukraine, Moldova
and, eventually, Belarus. In the Commission’s opinion the EU should ensure the International Financial
Institutions take adequate account of the importance of spending on education, health and social safety
net provisions in their policies towards the neighboring countries. It is further emphasized that Easternneighbors should benefit from more direct grant aid and budget support for tackling poverty, social andeconomic inequality and exclusion to achieve greater social cohesion (European Commission, 2003).
What is important is that the Commission will consider the possibility of creating a new
Neighbourhood Instrument which builds on the positive experiences of promoting cross-bordercooperation within the PHARE, TACIS and INTERREG programs. According to the Commission, this
instrument will focus on trans-border issues, promoting regional and sub-regional cooperation andsustainable development on the Eastern border.
The latter commitment would directly benefit the western Belarusian regions, and, in particular,
the activities carried out within the two euroregions. As detailed financial plans have not yet been
elaborated, it is very difficult to estimate the potential effects on the development of western regions.
Most probably, the EU activities would help to induce growth in those areas, but a lot would depend on
the internal economic and political situation in the country at the time when the programs would be
realized.
In general, the assistance offered by the EU New Neighbourhood Policy is conditional on acountry’s progress. In other words, the EU would not pay if the country ‘does not behave’. That cancause a problem for Belarus as the country’s policies usually do no comply with EU expectations. The
Commission admits that relations with Belarus would not be easy:

23

The EU faces a choice in Belarus: either to leave things to drift – a policy for which the people ofBelarus may pay dear and one which prevents the EU from pursuing increased cooperation on
issues of mutual interest - or to engage, and risk sending a signal of support for policies which
do not conform to EU values (European Commission, 2003, p.15).

The impact of integration with the Russian Federation on Belarusian regions
The integration processes between Belarus and the Russian Federation started in 1995 when acustoms union agreement signed by Belarus, Russia, Kazakhstan, Kyrgyzstan and Uzbekistan cameinto force. The customs union appeared to be a mere political declaration as every country continued tohave an autonomous trade policy. This was justified when in 1998 Kyrgyzstan joined the WTO without
any settlement with its partners in the customs union.
Since 1995, Belarusian leadership, unlike any other CIS country, pushed for closer integration
with Russia. In 1996 the agreement on the Community of Belarus and Russia was signed; a year later,
the Community was transformed into a Union of the two counties and, finally, in late 1999 the
Presidents signed the agreement on the Union State of Belarus and Russia.
It has been admitted by Belarusian and Russian economists that all those actions were nothing
but political declarations. The majority of the documents signed under the framework of the Union
State did not contain any significant commitments. The integration rhetoric was a useful political andideological instrument for both presidents Yeltsyn and Lukashenko. Yeltsyn wanted to keep an ally at
the time when all the other former Soviet republics turned away from Russia. Lukashenko wanted
cheap oil and gas, easy access to the Russian markets and, most significantly, access to the Russianpolitical arena (Tarasevich and Lobatch, 2001).
A politically not economically based decision to eliminate borders with Russia became very
harmful for the Belarusian economy in the long run. Apart from large volumes of “gray” trade that
undermined the competitiveness of local production and official importers, the resulting trade diversion
from more competitive markets froze the much-needed restructuring of the Belarusian state companies.
Besides, this ‘single vector’ policy led to a situation where 56% of Belarusian foreign trade was donewith Russia (100% of oil and gas imports), which made the Belarusian economy extremely sensitive todecisions taken by the Russian government (Tarasevich and Lobatch, 2001).
Under President Putin, Russian policy towards Belarus became much more pragmatic. Putin
stopped all integration rhetoric by offering “the closest variant of integration” – incorporation ofBelarus into the Russian Federation. Although Lukashenko held it back, economic and politicaldependence on Russia have been forcing Belarusian leadership to take decisions that serve exclusively
Russian interests (Romanchuk, 2003).
In these circumstances Belarus is being forced to privatize the biggest and the most efficientstate-owned enterprises in the chemical, petrochemical and fuel industries and to invite investors only

24

from Russia. The chemical and petrochemical industry in Belarus represents an interest for theRussian investors. The equipment in those companies is not worn out compared to other Belarusian
industries; the companies are profitable and have potential for growth. Only big Russian oil and gas
companies (Gazprom, Lukoil, Itera, Surgutneftegaz, TNK) expressed an interest in buying thosecompanies. According to Belarusian and Russian experts, it is now a good time to buy cheaply the bestpieces of Belarusian state property (Grib, 2003). Belarus needs investments badly; it unlikely that
foreign companies would participate in tenders (the business climate in the country is ranked very low,
and important foreign investors, such as Ford, Ikea, and MAN already left the country). Belarus isdependent on Russia and therefore Russian investors would have a priority in any case. Big Russian oil
companies have direct access both to Kremlin and Lukashenko, therefore they are quite sure that theirinterests in Belarus would be protected. To date, Russian companies have not acquired any shares ofBelarusian property as they found the conditions set by the Belarusian government to be not acceptable.
Belarus has put itself in the situation where Russian companies basically dictate the conditions forprivatization. Now potential investors wait until the Belarusian government suggests a better price forthe property.
Big Russian companies choose certain factories for investment and the regional dimension has
never been present in the decision-making. Small and medium businesses do not find Belarus attractive
for investment; therefore, the regional factors for Russian investment in Belarus have not yet appeared.
The currency union, which is being created, again, on the conditions of the Russian Federation
would de facto seal the incorporation of Belarus into the Russian Federation (Tereschenko, 2002).
Substitution of the Belarusian ruble with the Russian currency would create more threats thanopportunities. Belarus would lose its own monetary policy that used to be much softer than that in
Russia and would have to adjust to stricter rules. The Belarusian economy is not yet ready to refuse
devaluation as one of the most popular monetary policies. Introduction of Russian ruble would
probably create a shock that would drastically decrease the competitiveness of Belarusian products in
Russian markets and lead to severe economic and social consequences (Bogdankevich, 2002).
Following the logic of international experience, eastern Belarusian regions should have gained alot from the integration processes with the Russian Federation. In Poland, the western regions that werecloser to the EU took the largest benefits out of the accession process. Contradicting the Polishexperience, Belarusian statistics show that economies in the eastern Belarusian regions did not get any
significant impulse for growth. The number of loss-making companies increased, investments from
Russia have been very low, and migration of labor has not been intensified. Open Russian markets did
not bring significant advantage to the eastern regions as the companies were not able to use theeconomies of scale and to earn money for reconstruction. The turnover with Russia in those regions has

25

not been stable, exports during the last few years have decreased and prospects for the future are not
optimistic at all as Russian products become more and more competitive even within Belarus.
The price/quality ratio for most Belarusian products becomes less and less attractive for
Russian consumers. Modernized private companies in Russia start producing similar products at abetter price. Chinese and Korean exports to Russia of electrical devices in particular, put extra
competitive pressure on Belarusian goods sold in Russia. Belarusian products lose competitiveness at
Russian markets because of growing inefficiency of the state-owned enterprises and the inadequate
economic policy of the government4. Privatization was frozen in Belarus in the early 1990s, and the oldindustrial state-owned giants have seen very little modernization since then. The socially-minded
policy of the government obliged owners to keep all the workers in the companies even though theirduties were not needed any more. Loss-making production could not be closed; instead, the companies
strived for the state subsidies. The unfair tax system redistributed profits from the companies that havebeen doing relatively well to those that were in continuous loss. The procedure of bankruptcy has neverbeen initiated. Such a policy led to the situation where the companies could not save money to change
obsolete equipment and introduce new, more efficient technologies. Foreign investors have beenreluctant to participate in the state-owned businesses. In these circumstances, the costs of production
have been rising continuously but quality has not improved since the mid-1990s. The economic policyof the government, the state regulation of prices in particular, created a situation when even Belarusianbeer makers (all of them are still state owned) started to quickly loose markets to Russian andUkrainian brands within Belarus (Romanchuk, 2003). In some towns that are located close to theRussian border, small traders import bread, which is less expensive and of much better quality than thatbaked at the state-owned factories in Belarus.
In general, it appears like the western Belarusian regions gained more out of the eastward
integration process then the eastern regions. The number of loss-making companies in western Belarus
has been much smaller, and exports to Russia during the last five years have been more stable(Statistical Yearbook (2)). Actually, the western Belarusian regions lost more than they gained from therelations between Belarus and Russia. An economic policy that was declared to serve the interests ofRussia discouraged Polish and Lithuanian companies from investing in Grodno and Brest. These tworegions have much in common with the two countries due to cultural and historic reasons. Grondo andBrest were Polish territory before 1939; people there can speak Polish, most of them regularly visit
Poland and used to visit Lithuania before the country introduced visas. Despite this, Polish and
Lithuanian investors did not show any serious interest even in the free economic zones created over theborder in Brest (1996) and Grodno (2001).
4

Problems of Belarusian exports to Russia have been extensively discussed in Belarusskaja Gazeta (Belarusian Newspaper)and Belarusskij Rynok (Belarusian Maket) from 1999 – 2003.

26

Closer integration with Russia and the freeze of the Partnership and Cooperation Agreementwith the EU created trade diversion from Central and Western Europe to Russia. This had a harmful
impact on western Belarusian regions, because it undermined their economic potential. Companies in
Grodno and Brest were discouraged from keeping and extending their share in the more competitive,
but very promising Polish and Lithuanian markets. Exports to Poland and Lithuania demand higher
standards and give more stimulus for technological innovations. In the late 1990s Polish producers
started to use western European technologies, and if trade flows between neighboring Polish andBelarusian regions were developing, those technologies would have spilled over to Belarusia. Russian
technologies are not that advanced and therefore trade with Russia did not enrich Belarusian companies
with innovations. The open borders with Russia created an artificial situation where the necessary
macro- and microeconomic reforms in Belarus have been postponed (Zaiko, 2003). It can be said that“easy” exports to Russia largely absorbed the inevitable consequences of the unreformed state owned
economy.
The eastward policy of Belarus and disregard for Poland as an important trading partner
resulted in a rather protectionist trade regime on the Belarusian-Polish border. For example, the citizensof Belarus (if they are not registered entrepreneurs) can import no more than 50 kilos of “manufactured
goods” and 10 kilos of foodstuffs duty free. Each excessive kilo is due E2 euro of customs duty. Thismeans that a washing machine or a refrigerator becomes almost twice as expensive in Belarus. As an
outcome, a significant share of Polish imports slid to a “gray” sector. It is quite astonishing that theshare of Poland in the total official trade of the Brest region in 2000-2001 was merely 6.2 % and that of
Lithuania only 1.4%. For the Grodno region the share of trade with Poland and Lithuania during thesame years was 9.2% and 6.7% respectively. For comparison, the share of Poland and Lithuania in total
Belarusian foreign trade is respectively 3.2% and 2.3% (Table 7). These quantities are clearly too low
for neighboring states.
The disadvantages of the western Belarusian regions also arise from another factor. The greater
the dependence of Belarus on Russia, the more decision-making on internal Belarusian issues is done in
Moscow. In these circumstances the EU-Belarus policy becomes largely a part of the EU-Russia policy,
which may disregard the specific problems of Belarus and undermine the efficiency of the EU
assistance. The potential inadequacies would mostly affect the western Belarusian regions because theirrelations with the enlarged EU, both cultural and economic, are the strongest in comparison to other
Belarusian regions.
Closer integration with Russia would lead to a situation where exports of the eastern regions to
the enlarged EU would drop almost to zero. In other words, the way the integration with Russia has
been implemented facilitated the deterioration of the Belarusian economy. In Poland, on the contrary,enhanced integration with the EU induced additional impulses for economic growth.

27Conclusions
Regions in Poland as well as in Belarus have been responding differently to the opportunities
and challenges that arose from the wider integration processes in Europe. Integration with the EU has
been generally beneficial to the whole Polish economy and was a stimulus for faster economic growthin all the regions. Accession to the Union would probably increase the interregional disparities because
the peripheral regions, located in the eastern part of the country, have not enough potential to catch up
with the leaders. Also, those regions are not prepared to face increased competition in the EU Single
market. The EU regional policy would not become a remedy for growing regional disparities. The
equity-efficiency dilemma and contradictory political and economic considerations may impede theefficient allocation of EU money. In the optimistic scenario, the EU policies backed by the rational
actions of the Polish government may soften the accession shock for the Polish periphery, but real
convergence would be unlikely.
The impact of the EU enlargement on Belarusian regions would probably not be significant.
Economic interdependence between regions in Belarus and the candidate countries is quite weak. Only
the western regions that have closer links with Poland would be affected by the enlargement. This
impact would be driven by the EU New Neighbourhood Policy, cross-border cooperation within
euroregions, spillover from the Structural Funds allocations in north-east Poland, and the developmentof the cross-border infrastructure.
Belarus-Russia integration, unlike that of Poland and the EU, has been driven predominantly bypolitical considerations. In general, integration with Russia has not produced any significant positive
impact on Belarusian regions. Open borders with Russia brought about disadvantages for economic
development in Belarus because they created trade diversion from more competitive andtechnologically advanced markets in Western Europe to the less competitive and less demanding
Russian markets. “Easy” exports to Russia postponed the necessary structural reforms in the stateowned Belarusian companies. Excessive participation of the state in the economy, including large
subsidies and cross-subsidies to various industries, distort the concrete benefits and losses for theregions that resulted from the integration processes with the Russian Federation. Nonetheless, someindicators point out that the western Belarusian regions are better prepared to participate in European
integration processes. If state intervention in Belarus decreases, those regions would have closer
integration with the enlarged EU.

28

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