Autor: Prof. Goran Petrevski, PhD
Recently, the World Bank Group published the publication Greater Heights: Growing to High Income in Europe and Central Asia, which deals with the main drivers and obstacles in the transition of middle-income countries in the region towards the high-income level. Given that all the Balkan countries belong to this category, it would be useful to highlight the main challenges during this process.
Yes, it is possible!
Although several Central and Eastern European countries have seen an increase in the level of income, the recent murky global economic environment makes their prospects for reaching the high-income level in the near future unlikely. Moreover, some raise concerns that these countries might become caught in the so called middle-income trap with per capita incomes below the high-income threshold.
The growth slowdown in these countries arises mainly due to slow pace of structural reforms – reducing the role of government in the economy and establishing competitive environment compatible with efficient and innovative enterprises. In addition, these countries experience a decline in the size of working-age populations caused by the combination of low birth rates and large outward migration. Finally, a series of adverse global shocks that have occurred in the past two decades (the Global financial crisis, the COVID-19 pandemic, and the war in Ukraine) have had a dramatic impact on the global environment with very unfavorable consequences for these small open economies.
However, notwithstanding these obstacles, the policy makers in the middle-income Balkan countries should not fall into despair. After all, ten former transition economies from Central and Eastern Europe have simultaneously reached the high-income status and have joined the European Union by 2024. Their experience is to serve both as a source of optimism and as a guiding light with respect to the transition towards the high-income level.
Increasing productivity growth
To achieve higher growth rates necessary for attaining high-income status, the World Bank recommend these countries to engage in a transition from investment-based growth strategies to strategies based on the importation of global capital and the infusion of technology, knowledge and innovation. Such a transition requires developing economic structures and institutions conducive to the accumulation of human and physical capital, and supportive to innovations. In other words, these countries should not ignore the need to boost investment in both human and physical capital, but they also have to foster a dynamic business approach, invest in human capital and reduce the misallocation of resources. At the same time, this strategy implies that Balkan countries should further their integration in the global economy which will make them capable of adopting new technologies, ideas, and expertise from abroad and diffusing them domestically. In these regards, Balkan countries should follow the example of the above mentioned ten former transition economies, which have benefited from their participation in the global value chains and the infusion of expertise and advanced technology. Also, the accumulated experience suggests that traditional policies directed at supporting small and medium enterprises alone often fail to deliver high growth because these firms are too small and unproductive. Instead, it seems that startups and young firms are more dynamic and innovative.
To spur productivity growth in middle-income countries, the World Bank recommends several measures, such as:
- Promoting competition, reducing the presence of small and medium enterprises in competitive sectors, and enforcing intellectual property rights.
- Establishing direct support toward young, dynamic enterprises, which are the main source of job creation.
- Develop a skilled workforce along with quality management staff.
- Improving the access to long-term credit and risk capital, by deepening capital markets, facilitating venture capital and other forms of risk capital to support innovative entrepreneurs.
- enhance technology adoption by providing incentives for private R&D investment and fostering closer cooperation between businesses and academia.
- reducing trade barriers and improving logistics and border procedures.
Higher quality of education
The decline in the quality of education is seen as one of the main obstacles to long-term growth in the middle-income countries. For instance, there is a downward trend in the quality of primary and secondary education as measured by the scores of the PISA tests. Similarly, only a few universities from the Balkans are among the top 500 in the relevant international rankings. The interference of politics with universities, inadequate funding, outdated curricula, and the proliferation of low-quality universities are cited as the main causes behind these adverse trends.
Therefore, these countries need to focus on strengthening vocational education and training as well as improving the performance of higher education. Specifically, it is urgent to improve the effectiveness of vocational education and training in order to enable the students to meet the requirements of the job market. In these regards, it is obvious that the policy of equal access to higher education alone will fail to promote investment in human capital if the quality of education is poor.
Policy makers in the middle-income countries have at their disposal several measures for improving the quality of education, such as:
- reforming vocational education, and secondary education in general, by strengthening foundational skills.
- raising the age of separate academic track selection and strengthening the links with the industry to ensure the delivery of relevant skills.
- merging research centers with universities and strengthen university–industry.
- consolidating universities to increase the efficiency of resources allocated to higher education.
- eliminating the focus on obtaining university diploma and focusing on graduation on merit.
