A study conducted by the Vienna Institute for International Economic Studies highlights the need for Central and Eastern European (CEE) countries to adopt a new economic model based on innovation in order to bridge the gap with Western counterparts. The study argues that the region’s previous successful model, which relied on serving as an “extended workbench” for Western corporations, has reached its limitations. To enhance productivity and living standards, CEE countries must respond to structural changes such as decarbonization and digitization.

Drawing inspiration from the experiences of East Asian countries like Taiwan and South Korea, the study suggests that CEE countries can learn valuable lessons. Although there are notable differences between these regions, successful development in East Asia can provide guidance for CEE countries.

One key issue highlighted in the study is the overreliance of CEE countries on labor-intensive production, with the highest value-added production processes still predominantly located in Western Europe. This specialization hampers the economic prospects of CEE countries and inhibits their ability to catch up with Western counterparts. Additionally, the study warns of potential challenges arising from changes in the automotive industry. The shift towards electric vehicles, which require less labor-intensive production compared to traditional combustion engine models, coupled with increasing automation, poses further hurdles for CEE countries.

To address these challenges, the study recommends that CEE countries implement tailored industrial policies aligned with their specific conditions. It emphasizes the importance of establishing national innovation systems, fully leveraging European Union funds, and identifying promising market opportunities. Institutional reforms, efforts to mitigate the social impacts of structural changes, and endeavors to achieve a more equitable distribution of living standards are also suggested.

By embracing an innovative economic model, CEE countries can position themselves for sustainable growth and competitiveness in the global market. This shift towards a knowledge-based economy, coupled with strategic policy interventions and targeted reforms, will pave the way for the region to catch up with the more advanced economies of the West.

Article by Prague Forum