New Economic Model Needed for Central and Eastern Europe, Says Vienna Institute

According to a study by the Vienna Institute for International Economic Studies, a new economic model based on innovation is needed for Central and Eastern European (CEE) countries to catch up with the West. The previously successful model of the region, based on the “extended workbench” of Western corporations, has reached its limits. The study recommends that CEE countries respond to structural changes, such as decarbonization and digitization, to increase productivity and living standards.

The study also proposes that CEE countries can learn from the experiences of the so-called East Asian tigers, such as Taiwan and South Korea. The study acknowledges the differences between these countries and CEE countries but suggests that successful development in East Asia provides valuable inspiration.

One of the critical issues identified in the study is that CEE countries specialize in labor-intensive production, while the highest value-added production processes are still in Western Europe. This situation limits the economic prospects of CEE countries and hinders their ability to catch up with the West. The study also warns of the potential problems that changes in the automotive industry could bring to CEE countries. The production of electric vehicles is less labor-intensive than traditional models with combustion engines, and the increasing automation in this sector is a further challenge.

To address these challenges, the study recommends that CEE countries adopt industrial policies tailored to their conditions, create national systems for innovation, fully utilize EU funds, and identify promising market opportunities. The study also suggests institutional reforms, mitigation of social impacts of structural changes, and efforts to achieve equal distribution of living standards.