The Institutional Infrastructure of the 'New Economy' and Catching-up Potential of Post-Socialist Countries

Abstract

The contribution of the new to economic growth in developing countries has been minimal when viewed from a macroeconomic perspective. Despite the recent 'new economy' hype, the paper argues that the will for long be the fundamental force behind economic growth in transition economies. Nonetheless, in the longer run the 'new economy' offers great potential for faster economic growth and increasing standards of living in less developed countries, postsocialist countries included. Realizing the potential of the 'new economy' is however not automatic. It can be left unharnessed if there is no suitable institutional infrastructure, which would allow for adoption, diffusion, and productive use of innovative technologies. The paper constructs a New Economy Indicator (NEI) measuring the level of readiness of transition economies for harnessing the potential of the innovation and technology diffusion stemming from the new to accelerate the long-term economic growth and catching-up with developed countries. In the NEI ranking Slovenia scored the highest, followed by the Czech Republic, Hungary, Estonia, Slovakia, and Poland. Georgia, Azerbaijan, Uzbekistan, Albania, Bosnia and Herzegovina, and FR of Yugoslavia occupy the bottom of the table. The results seem to be congruent with a common knowledge that the most advanced transition countries should lead the ranking. Countries where the transition process has made the least progress rank at the very bottom. The NEI results largely square with the ranking of the Global Competitiveness Report published by the World Economic Forum (2001), which illustrates countries' competitiveness. This suggests that fundamentals responsible for the development of both the 'new' and the 'old' economy are largely the same. Hence, since both 'economies' rely on the same foundations, then there is no 'new' or 'old' economy: there is only one economy where old recipes for development still apply.