The convergence process and the importance of a consumption measure

The paper discusses private consumption as a measure of the real convergence of the Czech Republic toward EU and EMU accession. We use private consumption as an alternative measure, beside the standard measure of gross domestic product, whose growth may not automatically mean the convergence of a living standard. Specific to-the small and open Czech economy, the authors show that certain negative features, such as a worsening terms of trade or an increase of net foreign indebtedness, would accompany the rapid growth of real gross domestic product. In this respect, we also estimate the optimal value of investments in the Czech economy that would maximize private consumption growth. Finally, we discuss the ability of the Czech economy to maintain its internal and external balance without substantial interest- and exchange-rate fluctuations in the short and medium term, which is the key presumption of a smooth accession process.