Innovation in the CESEE region: the role of business environment, financing and reforms

After exhausting the easy options, Central, Eastern and Southeastern European (CESEE) countries need to find new ways of improving productivity. This chapter focuses on innovation by private sector firms. They introduce new products and processes, but few innovate at the technological frontier, consistent with the countries being at various stages of the catching-up process and having different conditions for innovation-based growth. As such, they vary in their capacity to use and create knowledge, and they lag behind advanced economies particularly on the latter. One size does not fit all; the economic institutions and policies that support the growth of firms need to evolve as a country develops. They should, however, include greater trade integration with the rest of the world and a business environment that facilitates the efficient reallocation of resources.