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The IUP Journal of Knowledge Management

Escaping the Development Trap: A Comparative Socioeconomic Study of Visegrad Group and Western European Countries

Article Details

Pub. Date	: Apr, 2023
Product Name	: The IUP Journal of Knowledge Management
Product Type	: Article
Product Code	: IJKM020423
Author Name	: Magdolna Csath
Availability	: YES
Subject/Domain	: Management
Download Format	: PDF Format
No. of Pages	: 22

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Abstract

A majority of countries in Central and Eastern Europe joined the European Union (EU) in 2004. One of the key objectives of the membership was to achieve economic, social and development convergence. In practice, however, the region has become a cheap production center for Western European companies. This can be proved by the very slow convergence even for typical macro indicators like GDP per capita, and as for socioeconomic indicators, the countries of the region are far behind the Western European countries. The reason is the low value-added, low productivity economic structure which is the consequence of the dominance of the Western European assembly-type investments in the region. Due to this dominance, a great proportion of locally produced GDP leaves the region in the form of repatriated profit. Lack of enough resources is impeding the necessary investments in human capital development, like education, healthcare and local Research and Development (R&D). Low level of human development consequently holds back productivity improvement and general economic development, as statistical indicators prove it. With low level of human development, however, the countries of the region will not be capable of actively participating in the rapid and unpredictable environmental changes. There is a great chance that the region will be trapped in a peripheral position, or in other words, it will get into a development trap. This paper examines a few important development indicators of the four Visegrad countries from Central Europe: Czechia, Hungary, Poland and Slovakia. The study compares their development indicators with those of a few Western European developed countries, and highlights correlation among competitiveness, innovation, productivity and human resource indicators to prove that low level of human capital and knowledge investments, i.e., intangible investments, will push these countries into a development trap, with low level of living standards, wellbeing and life expectancy compared to the developed countries. This path, at the same time, underscores that a majority of these countries will never catch up with the developed ones. Moving to a different development path would require change in economic policies. Rather than inviting even more assembly type operations, intensive investments in knowledge is the need of the hour to increase innovation capacity and productivity throughout the economy and society.

Introduction

Our age is characterized by rapid and unpredictable changes, great uncertainty and structural transformation. In order to be able to adjust, take advantage of opportunities and avoid threats, national economies have to develop capacity for change and innovation, and need to become agile and resilient. These characteristics require flexible economic structures, ability to create new solutions supported by knowledgeable, skilled and entrepreneurial population, eager and capable of learning, innovating and changing. Countries which neglect developing the required new skills will not be able to adjust to the ongoing changes and will risk getting into a development trap. The Central and Eastern European countries, which joined the EU since 2004, are now at a crossroads. They have to decide about continuing their so far followed growth-related economic policies supported by Foreign Direct Investment (FDI), or introduce a paradigm change and find better ways for catching up with the developed nations. Economic history proves that economic policies based on promoting assembly type FDIs-which has characterized economic policies in the region for a long time-have a limit. After a while even growth becomes slower, while economic and social development, compared to that of the developed countries, will lag behind. Statistical data prove that the countries of Central and Eastern Europe are facing this problem right now. If they do not change their economic policy, very soon they will remain the cheap manufacturing location for companies from the developed world, and will miss the chance forever to become an economically and socially developed region.