Productivity and competitiveness in CESEE countries: a look at the key structural drivers

This chapter provides an international perspective on the productivity performance of Central, Eastern and South-Eastern European (CESEE) countries – focusing on the key drivers of knowledge and technology diffusion from ‘frontier_ firms to lagging ones – and identifies the related policy areas where the scope for improving outcomes is largest. The chapter argues that among the main drivers of diffusion, CESEE countries are found to be generally well connected in global trade flows and well integrated in global value chains. However, the performance in terms of investment in knowledge-based capital and innovation activities is more mixed, while the efficiency of resource allocation is one area where a huge gap in the performance of CESEE countries vis-à-vis best-performing Organisation for Economic Co-operation and Development (OECD) countries is found. Such an inefficient allocation of resource and weak reallocation is indicative of high barriers to firm entry and exit as well as of frictions in the mobility of labour resources across firms, sectors and regions.