The Complicated Complexity of CEE Economies

Following a complicated transition, CEE economies veered from centrally planned to free market systems. This shift reorganization created some of the EU's most dynamic and complex economies and positioned them in the global spotlight.

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Since the fall of communism, CEE states have aspired to (re)converge with their Western peers, and so far, at least economically, they have managed to achieve parity or even exceed them in some sectors. Therefore, some believe that the region will surface Europe’s tigers, referencing the exponential growth registered (often with x3, x5, or x10 multipliers) in terms of GDP, purchasing power parity, relative wages, economic diversification, Export/Import balances, workplace equality, employment rates, and the list goes on. These impressive figures were maintained while keeping inflation, government borrowing, and deficits at rather low levels, allowing these countries to pass relatively unhindered through various crises.

Some of the world’s most diverse economies

Therefore, within these contexts, CEE’s diverse business environments thrived, which we can observe by analyzing MIT’s Observatory of Economic Complexity (2021) and Harvard’s Atlas of Economic Complexity (2021), two distinct indexes and sub-indexes that measure various indicators related to the economic complexity of a country.

For instance, from the Harvard datasets, Czechia, Austria, and Slovenia represent some of the globe’s top 10 most complex economies overall, followed closely by Hungary, Poland, Romania, and Slovakia, all of which make it in the top 20. Also, even the countries that underperformed in this index, like Bulgaria, Croatia, and Latvia, managed to occupy the 30-40th positions. Similarly, due to CEE’s exponential expansion into various industries and sectors, almost the entire region is within the first quarter of the globe in terms of economic diversification.

Otherwise, from MIT’s measurements, we can highlight that while CEE lags in terms of Technology (patent application and technology implementation) or Research (sophistication of academic research output) complexity when compared to other European states, it compensates with increased Trade and Import spread (variety of countries to which it has commercial ties). Subsequently, in terms of absolute trade volumes, the region also stands out for its per capita values, where, once again, it manages to gravitate around the top 30.

Moreover, some states recorded, within the 2016-2021 period, even thousand-fold growth for some products/services or trade destinations. Some countries recorded within the 201-2021 period even some thousand-fold growth for specialty products or services and trade destinations. For example, battery exports in Poland rose by 1000% and in Hungary by 1,520%. Estonia increased coal, tar, & oil exports by 4,720% and broadcasting equipment exports by 2,890%. Latvian exports to Nigeria increased by 5,010%. Hence, the region itself has some impressive values for both, roughly doubling them across all sectors and destinations.

Still much room for growth

On the other hand, Harvard’s indexes underline that CEE’s per capita wealth generation, despite constantly increasing, remains a point of concern, dragging the whole region closer to the middle of the global rankings. This can be explained since the product and services portfolios remain heavily dependent on industries with less added value, like manufacturing, agriculture, primary goods, energy, and retail, which translate into lower wages despite record transactions.

Otherwise, the regional prospects favor the development of CEE, especially in terms of its emerging startup scene, digitalization rates, and large-scale programs. Thus, when the line is drawn, these countries have complex economies and highly dynamic business environments. With sufficient willpower from their citizens and decision-makers, they can fine-tune the shortcomings as quickly as before.

Christopher Radovici

is a Ph.D. student at the Bucharest University of Economics, former Westminster graduate, specializing in CEE and EU Neighborhood affairs, involved in several cross-disciplinary research projects across Europe and with a series of active publications and conference participations in the field of IR, FP and Macroeconomics. Private and Civil Society - Duke of Edinburgh's International Award Gold finalist, alumni of Alpbach, Aspen and SUSI, actively contributing to various civil society organization and think-tanks in the Danube Region, while also having been the founder of a social entrepreneurship start-up.

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