What makes regions in Eastern Europe catching up? The role of foreign investment, human resources and geography.

In this paper we analyse regional growth in Central and Eastern Europe in the second half of the 1990s, a period in which pronounced disparities between a group of catching-up regions and another group of falling back regions appeared. We aim to identify the factors behind a dynamic growth performance and the weaknesses leading to poor growth and thus investigate the role of (foreign) investment, education and innovation as well as geographical factors in a model of economic growth. The key relationships proposed by this model are then estimated with empirical data for the period 1995-2000 using spatial econometric tools. We find that foreign direct investment was paramount for regional growth in that period. EU border regions and capital areas clearly outperformed others. Further, regional growth clusters have appeared. Surprisingly, the high level of secondary education in Eastern European regions played no role with growth. Higher education, in contrast served to facilitate technology transfer. (author's abstract)