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EU states in East-Central Europe need “a new, innovation-based economic model”the previous model as “extended workbench” western group is reaching its limits. This is the result of a 148-page study by the Vienna Institute for International Economic Comparisons (wiiw) and presented yesterday, Wednesday.
The countries would also have to react to major structural changes such as decarbonization and digitization. “Only then will these countries be able to catch up with Western Europe in terms of productivity and standard of living”, said wiiw economist Zuzana Zavarska. The authors of the study have identified a basic problem for the East-Central European EU states: Poland, the Czech Republic, Slovakia, Hungary, Slovenia, Croatia, Romania, Bulgaria and the Baltic States are still specialized in labour-intensive productions. However, the work processes with the highest added value are still in Western Europe. This limits the prospects of catching up economically with the West.
For Eastern Europe, the change in the auto industry in particular could become a problem because there are still many car factories in these countries. “It is well known that the production of electric cars is much less labor-intensive than that of conventional combustion engine models. Added to this is the advancing automation in industry”said Zavarska.
Taiwan, South Korea and Singapore
The wiiw study advises countries to pay more attention to industrial policy and looks to the countries of East Asia for inspiration. Taiwan and South Korea have shown how efficient a well thought-out strategic industrial policy can be, said the economist. Singapore, for example, has been successful in attracting foreign direct investment in areas that match the country’s industrial potential and development goals.
Even if creating a real “entrepreneurial state” based on the model of East Asia according to the wiiw study for most EU-CEE countries “may be unrealistic in the coming years”the study authors recommend the following measures: a tailor-made industrial strategy for each country, the creation of a national innovation system, the full absorption of EU funds and the identification of promising niches.
Other recommendations of the study are the strategic promotion of investments by foreign companies instead of blanket subsidies that are watering can, institutional reforms, social cushioning of structural change and distribution of the gains in prosperity that is as even as possible.
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