Growth and industrial policy during transition

Abstract

After twenty-five years of economic transition economic performance varies considerably in transition countries, while in most cases current outcomes show that the desired effects have not been achieved. In this paper we elaborate on why industrial policy has been a key missing element in the transition and has greatly contributed to the unexpectedly small and slow pace of economic recovery. After discussing the achieved level of economic development we undertake an empirical analysis in order to define the role of several important factors of growth, as seen at the beginning of transition (reform progress, macroeconomic stabilisation, initial conditions) and those that attracted particular attention during the global crisis (industrial/manufacturing output, exports). The analysis shows that the growth model in transition economies has altered both over time and in relation to the progress of transition reforms. The most important change concerns the share of industrial output in GDP, which is found to be one of the most important factors of growth after the initial phase of reform. These results suggest that transition economies should implement industrial policy measures as an integral part of their reform strategy instead of just speeding up reforms as the key (if not the only) element of government policy. Based on these results, we explore what would be a viable and proper industrial policy in transition countries, particularly what should be done in current conditions after the damaging effects of the recurrent global recession, and make some policy suggestions.

Shut Out? South East Europe and the EU's New Industrial Policy

“…in the 'super-periphery' countries of SEE similar to those imposed on other peripheral countries of the EU (Bartlett and Prica, 2013). However, there has been no sign of an accompanying renewal of industrial policy as a remedy for economic recession in any of these countries (Cerović et al, 2014).…”

Organisational learning in Serbia during the transition: The legacy of Bozidar Cerovic and his contribution to transition research

“…Cerović (2013) finds that the importance of intangible capital as a competitiveness factor is only gradually being accepted in Serbian companies, where investment in intangible capital is still rudimentary. In line with this critique, Cerović et al (2014) noted the falling levels of FDI following the economic crisis required a new focus on domestic industrial policy that would develop competitiveness, an approach applicable to all transition economies. Cerović noted that Serbia needs (1) a strong industrial policy that focuses on an export-oriented growth model, production incentives, and the creation of an economic environment with high technological and development capacity that 10 See: Van Ark, Hao, Corrado, & Hulten, 2009;Roth & Thum, 2010;Kuznar, 2012;Haskel, Corrado, Jona-Lasinio, & Iommi, 2013;Hidayati, Fanani, Prasetyo, & Mardijuwono, 2012;Prašnikar, 2010;Prašnikar, Redek, & Memaj, 2012;Dutz, Kannebley, Scarpelli, & Sharma, 2012. attracts FDI, (2) to strengthen business and professional associations, chambers of commerce, and organised inter-organisational activities, which should be followed by (3) development of higher education, especially in economics and business, human resource management, training, and other forms of support in fields that are essential for both present and future entrepreneurs.…”

The Serbian economy ten years after the global economic crisis

“…Therefore, industrial policy ought to consist of a coordinated set of measures not only to improve the overall business environment but also to stimulate structural changes in the economy, technological upgrading, local supply chains, private sector growth, and absorption of the still-unemployed labour force. Such an industrial policy would need to encompass not only horizontal measures to improve the general conditions of firms' competitiveness, but also measures to support concrete industrial sectors and positive structural changes, as a crucial component of the new approach to development (Cerović et al, 2014). Instead of continuing to subsidise loss-making state-owned enterprises, scarce budgetary resources should be directed towards promoting national priorities -potentially fast-growing sectors that are prominent in terms of competitive advantage and the potential to drive a rise in productivity.…”