CHAPTER 4
Škoda expanded networks in the bigger European market to grow outside Europe as well. Firms with traditional business models whose markets were disrupted by the competition from emerging economies were the losers. Italian industrial districts like Prato are among the entities that depended on the flexibility offered by local networks of small companies and are struggling in a world where a minimum scale is critical to success. As a result of these and other changes (box 4.1), and despite decent performance overall, the expanded single European market did not benefit incumbents equally. A decomposition of overall performance depicts a European Union13 where convergence of emerging Europe toward advanced Europe coexists with a divergence within advanced Europe. The result is a Europe growing at different speeds (figure 4.2): · The leaders. Continental and Northern Europe saw value added grow in 2002–08 at an average of 3 percent a year, due in equal part to productivity gains and employment creation. The average export share in GDP in these countries was more than 40 percent. · The chasers. Emerging Europe reduced part of the gap with the rest of the European Union, generating value added at more than twice the rate of the EU15, mostly because of increased productivity. These economies became increasingly connected to the rest of Europe and the world: on average, exports now stand at more than 50 percent of their GDP. · The laggards. Southern Europe (EU15 South) shows the slowest value-added growth (1.3 percent) in the same period, coming exclusively from employment generation. Southern countries did not register productivity improvements and showed little growth in export intensity (the share of foreign sales in total turnover) which, at 28 percent of GDP, is well below the EU average.
Figure 4.2: The east giving chase, the south falling behind (employment, productivity, and exports, 2002–08)
Source: World Bank staff calculations, based on Eurostat and WDI.
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