Global Flows, Local Conditions and Productivity Spillovers: The Case of the Central and Eastern European Countries

Abstract

The evolution of labour productivity in an economy can be affected by technology transfer through international linkages, as this permits the incorporation of innovation and automation intensive capital goods into the local productive system. Globalization may be an opportunity to promote sustainable growth – within the industry 4.0 framework – in economies with low levels of innovation or automation. In this paper, we analyse the role of global flows and local conditions for a sustainable productivity growth in the EU member states of Central and Eastern Europe. We focus on the imports of capital goods and foreign direct investment (FDI) inflows as main drivers of technology diffusion and productivity spillovers. As productivity also depends on the local capacity for technology adoption, in this work, we control for domestic factors, such as the domestic investment, R&D expenditure, levels of human capital and the quality of local institutions. Our estimates based on panel data models for 2000-2018, confirm that capital imports have been productivity enhancing in Central and Eastern European countries. Evidence that FDI inflows have a positive influence in the transmission of technology is vague or insignificant according to our model. Finally, our estimates show that countries with higher R&D spending, stronger institutions and higher physical and human capital endowments enjoy higher productivity gains