The role of EU funds in enhancing the development potential of CEE economies

Ferry, Martin; Galgóczi, Béla and Drahokoupil, Jan, eds. (2017) The role of EU funds in enhancing the development potential of CEE economies. In: Condemned to Be Left Behind? Can Central and Eastern Europe Emerge from its Low-wage Model? European Trade Union Institute, Brussels, pp. 153-170. ISBN 9782874524622

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The starting point for this chapter1 is the disjuncture between fast productivity growth in Central and East European (CEE) economies and poor performance in developing innovative capacities for longer-term sustainable growth and development. The implicit ‘development model’ of the CEE economies in the past two decades has been based on institutional, trade/FDI and financial integration with Western Europe. Until the global financial crisis of 2008/2009 this model was considered a success. More recent assessments (see e.g. Becker and Jäger 2010) show that this model (particularly its strong reliance on external finance) is unsustainable. There is an argument that, as levels of FDI fall, the CEE Member States need to embark on a ‘high road’ of development based on ‘competitive advantage’, since the ‘comparative advantage’ stemming from low production costs cannot provide a foundation for long-term development. However, CEE economies are low performers in the development of indigenous technological capabilities, as demonstrated by stagnant or even falling research and development (R&D) expenditures, low propensity for innovation and limited patenting activities. According to the European Union (EU) Innovation Scoreboard, most CEE countries are ‘moderate’ innovators, performing below the EU average for different measurements, particularly for open, excellent and attractive research systems and linkages between research and entrepreneurship (European Commission 2016a).