wiiw warns EU-CEE countries, including Romania, need innovation to exit middle-income trap

The Central and Eastern European EU members (EU-CEE) have undergone an impressive process of economic catch-up since the early 2000s, but the previously successful model of taking over labour-intensive production steps as an ‘extended workbench’ for Western companies is increasingly nearing its limits and the countries need a new industrial policy worthy of the name to exit the middle-income trap, according to a report published by the Vienna Institute for International Economic Studies (wiiw).

Such a European-coordinated industrial policy, tailored to the specific needs and strengths of each country, can only succeed with technological innovation, the wiiw report furthers.

The study recommends that the EU-CEE member states take a number of steps: 

– create a long-term innovation strategy and a national agency to coordinate all innovation efforts; 

– make better use of EU funds and increase national funding for research and development; 

– improve administration and public institutions; 

– promote local suppliers, introduce targeted incentives for R&D and, above all, encourage the better networking of domestic companies with foreign corporations to establish industrial clusters in promising areas; 

– selectively target foreign direct investment in sectors that align with their own existing industrial strengths; 

– and create incentives for foreign companies to conduct more research locally. 

In this respect, the study advocates moving away from a reliance mainly on tax incentives for increased R&D expenditure to include more grants and even state subsidies.

In addition, the study recommends strengthening universities and research institutions and linking them with industry – for example, by tying funding for companies to cooperation with scientific institutions. There is also a need to accelerate the training of a sufficient number of highly qualified specialists in natural science subjects; to facilitate the immigration from abroad of such personnel; and to improve financing conditions for innovative companies

EU-CEE countries include Poland, Czechia, Slovakia, Hungary, Slovenia, Croatia, Romania, Bulgaria, Estonia, Latvia and Lithuania.

iulian@romania-insider.com

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