provided it with an external institutional anchor. fundamental reforms such as the establishment of a clearly defined system of property rights, effective economic law enforcement and institutions to curb fraud and anticompetitive behaviour were crucial in allowing slovakia to operate in a market economy and to cope with competition and market forces. 1 / 4 bis central bankers'speeches access to the single market and adoption of the acquis communautaire have contributed to slovakia ’ s success in two ways. first, the removal of trade barriers and application of european - wide standards considerably reduced the cost of doing business across borders, fostering trade and encouraging the country ’ s participation in european value chains. 3 second, a more stable and predictable legal and regulatory environment improved investor security and contributed to a rapid inflow of foreign investment, providing the economy with the necessary foreign capital, know - how and technology to increase its competitiveness. the slovak economy became deeply integrated into the single market, with an export share of almost 100 % of gdp, well above that of other cee economies ( chart 2 ), and almost 20 % of jobs depending on eu exports to the rest of the world. 4 the resulting significant economic convergence eventually paved the way for the introduction of the euro. many saw the loss of an independent monetary policy and the inability to respond to external shocks as the most significant cost of joining the euro area. however, slovakia ’ s high degree of openness had made it difficult for its national central bank to manage the business cycle in the face of volatile capital flows. the exchange rate had more often become a source of shocks rather than a shock absorber. 5 so the benefits of adopting the euro were compelling. one immediate benefit was the stabilisation of slovakia ’ s exchange rate with key trading partners and the elimination of currency conversion costs. research shows that euro adoption thereby contributed to a 12 % increase in slovakia ’ s exports to the euro area. 6 a further advantage of the introduction of the euro was the strengthening of slovakia ’ s macroeconomic institutions. adopting the euro gave further impetus to institutional convergence and allowed slovakia to anchor its macroeconomic institutions in a stronger european framework. in the run - up to euro adoption, numerous amendments to the slovak institutional framework were made to ensure convergence with eu requirements, which were closely monitored by the european institutions as in the ecb convergence report. 7 high standards were required for the independence of the central bank, particularly for the personal independence of executive board members. 8 safeguarding institutional independence is

crucial when european monetary policy coexists with national financial and labour market policies and where interests may not always be aligned. the embedding of slovak institutions in a stable european institutional framework therefore contributed to macroeconomic stability during the crisis and increased investment and trade. indeed, in comparison with the czech republic, which has very similar economic structures, slovakia has experienced faster economic growth since 2009. although the czech republic was able to pursue an independent monetary policy during the crisis, slovakia managed to maintain a 0. 9 percentage point advantage over that country in terms of average annual gdp growth between 2009 and 2016. 9 as a result, the gap between slovak and czech gdp per capita narrowed from 21 % in 2008 to 13. 8 % in 2017. 2 / 4 bis central bankers'speeches the importance of institutional quality for long - term convergence may slovakia ’ s success continue for many years to come. in the long run, though, it cannot be taken for granted that slovakia ’ s growth model will continue to deliver strong growth ; convergence with eu countries could slow. slovakia risks falling into the so - called middleincome trap, whereby middle - income economies tend to follow a lower growth trajectory. much of the country ’ s growth depends on its ability to attract foreign investment, skills and technology to raise productivity. however, the country has now started to experience a slowdown in foreign investment, technology diffusion and labour productivity. 10 for slovakia to avoid the middle - income trap, it could be useful to develop new strategies focused on domestic innovation. above all, this would lead to more productive firms, more private capital and more skilled labour to spur long - term growth. such improvements, however, often depend on setting the right institutional conditions. indeed, institutional quality has proved to be an important factor in achieving higher incomes in the long run. 11 factors such as inefficient public administration, weak control of rent seeking, tax evasion and corruption hamper competition and economic inclusion. slovakia ranks below the euro area average in some of these areas, as measured by the most commonly used institutional governance indicators. more importantly, while most other new euro area countries showed some improvement over the past decade, reform momentum in slovakia appears to have slowed after the euro was adopted ( chart 3 ). by improving in two key areas, slovakia could help foster the right domestic conditions for businesses to thrive. one area is improving the business environment. according to the world bank ’ s doing business indicator, slovakia ranks below the new euro