Choosing Right from Wrong: Industrial Policy and (De)industrialization in Central and Eastern Europe

Over the past two and a half decades, the economic landscape of Central and Eastern European economies went through several waves of transformation. The demise of traditional industries and the rise of the service sector during the 1990s inclined economic structure towards deindustrialization. The events over the next years paved the way for the rise of new industries in many of these countries and embarked them on the route of reindustrialization. However, in some countries the rise of new industries was more modest and took place at a much slower pace. Such development can be attributed to the process of industrial restructuring as well as industrial policies. The recent rise of awareness about the importance of industrial development for the growth and well-being of nations makes it relevant to investigate the sources behind changes in the economic structure of Central and Eastern European countries. Our findings reveal two groups of CEECs, defined as reindustrializing and those going through deindustrialization. The research identifies loss of competitiveness as the principal driving force of such an outcome. No support was found for horizontal policies. The reindustrialization mainly takes place through productivity improvements in less knowledge and technology intensive activities. Such findings are in line with those on the position of CEECs in global value chains.