Industrial Specialisation and Productivity Catch-Up in CEECs - Patterns and Prospects

Abstract

Research into the structural patterns in Central East European economies’ aggregate value added or production can draw upon a large body of literature. However, this research often stops short of assessing what the patterns described tell us in terms of prospects for catching up of each individual accession candidate to European levels of economic development. This distinct lack is mainly rooted in shortcomings of economic theory, which so far is unable to present a coherent theory of integration between unequal partners and catch up development. This paper therefore uses various ad-hoc assumptions (path dependency, hysteresis, learning-curve, product-cycle, etc.) to predict future catch up scenarios for Estonia, Poland, the Czech and Slovak Republics, Hungary, and Slovenia. The focus is on patterns of specialisation in manufacturing industries. A variety of different taxonomies (OECD, WIFO, own classifications) establishing classes of manufacturing industries correspond to the ad-hoc assumptions used and allow careful prediction of individual paths of catching up in industrial productivity levels. The results of this analysis are particularly important for economic policy in accession candidates and at the EU level in terms of targeting structural and cohesion fund policies to their most efficient use. The analysis uses simple empirical methods working with mainly employment and industry-specific productivity data at NACE 3 digit-levels. The paper establishes an empirical model of typical industrial labour productivity growth determined by patterns of specialisation in manufacturing industries and the extent of backwardness by use of past experience both in EU cohesion and EU accession countries. This model is then applied to predict potentials of productivity growth and prospects of productivity catch-up in several distinct scenarios of structural adjustment in EU accession states. The predictions suggest that productivity catch-up will at the very least take more than two decades with Slovenia and the Slovak Republic arriving first. The Czech Republic and Hungary share similar catch-up prospects slightly more favourable as compared to Poland. The results for Estonia are bleak.