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Economic growth in Slovakia: past successes and future challenges

Description
Summary: Between 2000 and 2008 Slovakia grew by almost 6% per year in per capita terms. As a result, Slovakia substantially narrowed the economic gap that separated it from more developed western European countries: Slovak GDP per capita increased from 43% of the EU-15 average in 2000 to 64% in 2008. The crisis, however, significantly slowed down the convergence process; Slovakia's average GDP per capita growth since 2008 is only slightly above 1%. This paper analyses the sources of this slowdown and examines the primary challenges to future growth. It shows that the behaviour of labour productivity largely explains both Slovakia's strong growth performance before the crisis and the sluggish growth rates since. The paper shows that, while increasing employment and labour force participation could have a significant impact on Slovakia's GDP level, there are substantial gains to growth to be achieved by closing the still large labour productivity gap between Slovakia and more developed European economies. We analyse this gap, showing that it is due entirely to within-industry productivity differences rather than to the allocation of labour across industries. We then argue that a primary challenge for Slovakia it to restart productivity growth in its tradable sector, which has been sluggish since the crisis and the substantial reduction in FDI inflows. At the same time, we stress the importance of diversification across industries, the lack of which could leave Slovakia highly vulnerable to industry-specific shocks. We finish by suggesting that a possible way forward for Slovakia to increase growth and productivity is to raise investment in equipment, given the substantial impact on growth that this type of investment seems to have. Mobilising substantial additional investment in a broader set of industries will, of course, in large part also depend on further reforms such as increasing human capital by improving the education system, enhancing the transport infrastructure of relatively underdeveloped regions such as eastern Slovakia, and promoting a better business environment.
Physical Description: 1 Online-Ressource (circa 20 Seiten); Illustrationen
ISBN: 9789279544699
DOI: 10.2765/01942
Access: Open Access