Countries of Eastern Europe and the former Soviet Union have put the crisis of the 1990s behind them, but they need to innovate, include all their citizens in the development of their countries, and integrate with the broader global economy if they want to sustain growth, according to a World Bank report.
“When it comes to the importance of competition for restructuring activities in firms, the transition economies are following in the footsteps of developed market economies,” says Pradeep Mitra, chief economist, Europe & Central Asia Region, World Bank and author of the report. “Their business and financial sectors are maturing as well, relying less on family and informal sources to fund fixed investments.”
The study, “Innovation, Inclusion, and Integration: From Transition to Convergence in Eastern Europe and the Former Soviet Union,” found:
* Productivity growth the only viable route to lasting prosperity depends on there being a supportive business environment, specifically one that delivers competition, a deep financial sector, good governance, and superior skills and infrastructure.* Key aspects of the business environment, such as competition and finance, that shape the behavior of firms are maturing and converging towards those in the developed market economies of Western Europe. This convergence is more pronounced in the new member states of the European Union. The Commonwealth of Independent States (CIS) are followers, though some distance behind.* Employment growth has been sluggish almost everywhere, and has reflected the interplay between (i) job growth in new private firms that were able to occupy market niches nonexistent under central planning; and (ii) downsizing in state-owned and privatized firms.* Productivity growth and public transfers fed by rising fiscal revenue have moved 50 million people out of 400 million out of absolute poverty (those with an income of less than $2.15 a day in purchasing power parities) between 1998-99 and 2005-06. While nearly one in five people or 85 million lived in poverty around 1998/99, only one in twelve or 35 million did so around 2005/06.* Countries in Eastern Europe and the former Soviet Union now face a third transition aging populations, which will slow economic growth unless more of the population is brought into the labor force, resources are used more efficiently, and pensions and health care systems are reformed to avoid them becoming sources of acute fiscal pressure.