EIB Working Paper 2025/01 - Growth and competitiveness in Central, Eastern and South-Eastern Europe: The role of innovation

Abstract

Despite increased innovation capacity, countries in Central, Eastern, and South-Eastern Europe (CESEE) face significant challenges threatening their growth and competitiveness, including severe skills shortages, uneven productivity, and barriers to commercialising innovation. The paper highlights the role of foreign direct investment in driving innovation, noting that firms established through greenfield investments exhibit higher productivity than their domestic counterparts. Contributing to the skills shortage are low public R&D spending, insufficient corporate investment in continuing education, and emigration. Limited collaboration between universities and businesses and a shortage of risk capital are key obstacles to bringing innovative ideas to market. To address these challenges, the paper recommends various measures to improve the availability of skilled labour, secure risk capital, foster collaboration between academia and industry, and enhance the overall business environment. Dashboards illustrate how innovation capacity and outcomes vary between CESEE countries, combining data from the EIB’s Investment Survey with a range of firm-level public and private datasets. This paper was developed through a collaboration among the Austrian National Bank (OeNB), the Vienna Institute for Economic Studies (wiiw), and the European Investment Bank (EIB). These institutions partnered on a broader study exploring competitiveness and future drivers of economic growth in CESEE countries that are EU members. Complementary papers on the productivity slowdown and shifting comparative advantages in trade have been published by wiiw.