( tfps ) of 23 eu economies since 1998. countries in europe grow at different speeds. they also appear to belong to different convergence clubs2. even among central european economies, more than one convergence club could be discerned. 1 / 3 bis - central bankers'speeches for example, hungary and the czech republic appear to belong to one club, while poland, lithuania, and latvia belong to another ; the members of the two clubs are converging to different points of tfp if they continue their current trajectories. furthermore, lietuvos bankas, in its 2020 study on convergence, estimated that lithuania would have needed a tfp of more than 30 % higher over the past 20 years to catch up with the tfp levels of the original eu member states of germany, france, or belgium, who belong to a club of their own. this challenges the convergence measurement itself because convergence in terms of tfp is not straightforward. countries belonging to different convergence clubs appear to be experiencing convergence at the level of their club – a concept that is not equivalent to the overall convergence within the eu. what is puzzling is that when we focus solely on convergence in terms of gdp, we find evidence that such convergence is happening. for example, over the past decade lithuania's gdp per capita rose to 87 % of the eu average. the other two baltic states also boasted robust convergence rates in terms of gdp convergence. but when we look at productivity – and, in my view, productivity is the key driver of growth – the picture changes. data shows substantial productivity variation within europe. labour productivity growth is uneven, and we can see evidence that the central european region was growing considerably faster in the first decade of the 21st century than in the following decade. this is a gravely worrisome trend, especially when discussing convergence. the productivity debate usually ends with prescriptions like " increase investments " and " implement structural reforms ". today, however, i hope that panelists will share their thoughts on the economic model of central europe in general. have we reached the limit of what can be achieved without undergoing a fundamental transformation of how we do things? will automation and immigration provide the impetus for this region to grow and prosper? with all this in mind, i would like to move to the institutional side and its effects on convergence. institutions undoubtedly play a significant role in determining countries'overall economic success. the question remains as to which institutions have the greatest impact on convergence and through what

. corporate taxes. thus, many companies have an incentive to leave those funds with their foreign subsidiaries, even if the funds far exceed plans for foreign capital expenditures. in such circumstances, those funds are often parked in cash or short - term investments overseas and are, thus, less accessible than one might infer from a consolidated balance sheet. it is difficult to determine whether a corporation ’ s cash is held at home or abroad, but we know that significant holdings of cash are concentrated at large multinational firms. in particular, the board staff ’ s analysis ( of standard & poor ’ s compustat data ) indicates that the ratio of cash to total assets at domestic - only companies rose slightly less than 20 percent between year - end 2001 and 2004. at the same time, the cash intensity of balance sheets at multinational companies increased more than 50 percent. moreover, recent research has demonstrated a strong statistical link between the data are for u. s. corporations from standard and poor ’ s compustat, reported on a consolidated basis. testimony of chairman alan greenspan, february 16, 2005, federal reserve board ’ s semiannual monetary policy report to the congress, before the committee on banking, housing, urban affairs, u. s. senate. corporate cash holdings also rose in a number of other g - 7 countries, but i do not address whether the buildup in those countries might, as in the united states, be unusual, or whether it is adequately explained by its historical relationship with fluctuations in cash flow and investment spending. accumulation of cash and the estimated tax burden from repatriating foreign earnings ( hartzell, titman, and twite, 2006 ). as a means of unlocking those offshore cash holdings, the congress and the president provided u. s. companies a one - time opportunity - through the american jobs creation act of 2004 - to repatriate foreign profits at a much reduced statutory tax rate. indeed, wall street estimates indicate that many companies have capitalized on this opportunity : an extra $ 250 billion may have been repatriated during the past four quarters. that estimate appears consistent with the recent pattern of distributions from foreign income reported in the commerce department ’ s international transactions data. with access to such large holdings of cash, we would expect corporations to disburse an unusually large portion of current cash earnings either through de - leveraging, accelerated dividends, or increased share repurchases. to the extent that any of these firms face financing constraints