Supply-Side Strategy for Productivity, Competitiveness and Convergence for the EU and the CEECs

Abstract

This chapter analyzes the nature of supply-side strategy, which can lead to global productivity, competitiveness and convergence, paying attention to the role of clusters, institutions and institution building. It assesses critically existing literature and debate on international trade, Foreign direct investment (FDI) by transnational corporations (TNCs), 'competitive bidding' and convergence. The traditional theory of international trade is based on the assumption of perfectly competitive markets. In principle, TNCs can create markets, transfer technology, management skills, entrepreneurial skills, international networks, culture. The chapter provides a model of competitiveness and the determinants of productivity. The quantity and quality of entrepreneurs and managers are extremely important determinants of the productivity, given their ability to manage and mobilize other employees. Horizontal measures, optimal size, and clusters of the small and medium sized enterprises are linked to the competitiveness wheel, through the determinants of productivity.