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The Puzzle of Czech Economic Growth

The Czech experience suggests that the gross domestic product (GDP) real growth rates do not perfectly express the real growth in small and highly open economies with improving terms of trade. The improvement in terms of trade has much to do with the strong catch-up in quality, recently observed in the Czech Republic. While the Czech GDP real growth rates were relatively low in comparison with other CEECs, the dynamics of gross domestic income, which is the indicator taking into account profits (or losses) stemming from change in terms of trade, suggest a more favorable picture. Moreover, a question arises as to, whether strong changes in quality are fully mirrored in the real growth rates of standard macroeconomic indicators.