Estonia, Slovenia and Lithuania lead new EBRD Knowledge Economy Index

By Axel  Reiserer


  • EBRD launches a new index which tracks innovation and related infrastructure
  • Serbia, Belarus and Georgia made most progress between 2011 and 2018.
  • EBRD regions strong on skills but weak on institutions

Estonia, Slovenia and Lithuania are the standout performers in a new Knowledge Economy (KE) Index launched by the EBRD. The Index measures the performance of the 38 economies where the Bank invests, alongside the economies of eight frontier innovators, including the USA, Germany and Japan.

The new data on how individual countries are progressing in their development of the skills, technology and infrastructure needed to deliver innovative economies will provide important guidance to both policymakers and investors.

Mattia Romani, EBRD Managing Director, Economics, Policy & Governance, said: „This is an important initiative which will help our countries identify their strengths and weaknesses in innovation. Such an impartial analysis is a prerequisite for developing policy guidance and targeting our investment.“

He added: „There are no one-size-fits-all policies to promote the knowledge economy. Rather, countries should adopt reforms that take into account the stage of their knowledge-economy development.“

The Index is part of the EBRD’s new approach to measure countries’ progress according to six qualities of a sustainable market economy: competitive, resilient, green, integrated, well-coverned and inclusive.It  has four pillars with 38 indicators:

  1. Institutions for innovation, including economic openness, business environment and good governance
  2. General skills and specialised skills for innovation
  3. Inputs and outputs of the innovation system and the linkages within the system
  4. Information communication technology (ICT) infrastructure, including ICT availability and sophistication.

Scoring countries from the theoretically least advanced (1) to the theoretically most advanced (10) results in Estonia achieving 6.82, followed by Slovenia with 6.65 and Lithuania with 6.03. These countries are not too far from OECD comparators (7.36). In contrast, Egypt, West Bank and Gaza and Turkmenistan produced the lowest scores with results around 3.

 

Economy

Total score

(out of 10)

Ranking among EBRD economies

Pillar score (1 min-10 max)

       

Institutions for innovation

Skills for innovation

Innovation system

ICT infrastructure

 

OECD comparators (average)

7.36

 

8.08

7.14

6.48

7.73

 

EBRD regions (average)

4.67

 

5.52

4.96

3.22

5.00

 

Difference

2.69

 

2.56

2.18

3.26

2.73

Central Europe and Baltic states

Estonia

6.82

1

8.01

6.70

4.58

7.99

Slovenia

6.65

2

7.40

7.32

5.14

6.73

Lithuania

6.03

3

7.24

5.85

4.04

6.97

Latvia

5.88

4

7.36

6.31

3.04

6.80

Poland

5.63

6

6.80

6.31

3.82

5.58

Croatia

5.62

7

6.72

5.80

3.81

6.14

Slovak Republic

5.40

8

6.76

5.48

4.08

5.29

Hungary

5.33

9

6.55

5.82

3.49

5.47

South-eastern Europe

Cyprus

5.82

5

7.52

5.70

3.80

6.27

Greece

5.25

10

6.06

5.45

3.78

5.74

Bulgaria

5.18

12

5.91

5.28

3.27

6.28

Serbia

5.13

13

5.76

5.46

3.26

6.02

Montenegro

5.04

14

6.20

5.16

2.88

5.92

Romania

5.01

15

6.02

4.94

3.41

5.68

North Macedonia

4.50

22

5.74

3.83

3.27

5.18

Albania

4.36

25

5.64

4.79

2.36

4.67

Bosnia and Herzegovina

4.10

29

5.04

4.13

2.88

4.35

Kosovo

3.22

35

4.81

2.75

3.12

2.20

 

Russia

4.93

17

4.83

5.74

3.41

5.73

Turkey

4.60

19

4.87

4.81

3.82

4.90

Eastern Europe and Caucasus

Belarus

5.21

11

5.50

6.05

3.27

6.01

Georgia

4.97

16

6.56

5.40

2.71

5.21

Azerbaijan

4.56

20

4.62

4.90

3.68

5.06

Armenia

4.51

21

5.44

5.24

3.12

4.24

Moldova

4.33

26

5.03

4.57

2.77

4.95

Ukraine

4.29

27

4.33

5.44

2.84

4.56

Central Asia

Kazakhstan

4.85

18

5.80

5.68

2.69

5.23

Mongolia

4.48

23

5.11

5.10

2.65

5.05

Kyrgyz Republic

3.98

31

4.38

5.02

2.39

4.15

Uzbekistan

3.82

33

3.48

4.72

2.57

4.51

Tajikistan

3.23

34

3.47

4.73

2.96

1.77

Turkmenistan

2.26

38

3.42

2.47

1.71

1.43

SEMED

Jordan

4.43

24

5.93

3.93

3.44

4.43

Morocco

4.23

28

5.06

3.83

3.46

4.58

Lebanon

4.07

30

4.56

3.54

3.45

4.72

Tunisia

3.96

32

4.38

3.82

3.04

4.59

Egypt

3.11

36

3.54

3.03

2.46

3.42

West Bank and Gaza

2.83

37

3.90

3.25

1.83

2.33

Note: Scores represent the distance to frontier (DTF)

 Knowledge Economy (KE) Index 

On average, skills in the EBRD regions are not too far from the comparator countries, which are often top innovators in the world. This shows a good potential for innovation. However, what is holding back many EBRD countries are weak institutions for innovation, including government effectiveness and general business environment. Moreover, some EBRD countries show low economic openness that constrains technology transfer.

The largest gap between the EBRD countries and the frontier is in the efficiency of the innovation system. While early KE countries spend very little on R&D, more advanced KE countries in the EBRD regions have weak links between academia and business. Finally, a considerable gap still exists in ICT infrastructure.

The report also examines the progress the EBRD regions made between 2011 and 2018. While all countries improved their KE during this period, Serbia, Belarus and Georgia were the KE growth champions, while Turkmenistan and Egypt improved the least:

  • Belarus and Kazakhstan made the largest progress on institutions. Their progress was driven by better business environment and higher economic openness. Unfortunately, some EBRD countries worsened their institutions (e.g. Egypt or Tunisia) mostly due to weaker governance or political stability.
  • On skills the most prominent reformers are Uzbekistan and Turkey. At the same time, some EBRD countries (e.g. Lebanon or Montenegro) have worsened their skills during 2011-2018.
  • Of all EBRD countries, Azerbaijan and Tajikistan improved their innovation system the most. These improvements came mostly from higher R&D spending and stronger linkages within the innovation system. At the same time, Tunisia or Montenegro declined the most on this measure.
  • It is positive that all EBRD countries improved their ICT infrastructure. In particular, some countries like Serbia and Montenegro made a remarkable progress. Unfortunately, some countries (e.g. Turkmenistan or Kosovo) showed only very limited improvements in the ICT infrastructure between 2011 and 2018.

The Index also examines steps to be taken to promote the knowledge economy:

  • Early KE countries have weak “basic requirements” such as institutions and ICT, which prevent them from moving up to the next stage. These countries need to reduce trade barriers, improve business environment and invest more in the ICT infrastructure.
  • In intermediate KE countries graduates typically don’t have the right skills that are required by the private sector. These countries should in particular promote the ability of firms to catch-up with the technological frontier.
  • Advanced KE countries have started to “make” their own technology, but innovation which is “new to the world” remains rare. These countries should enhance firms’ ability to commercialise new products, promote venture capital and build stronger links between university and business.

EBRD regions by stage of the knowledge-economy development

Stage of KE development

Economies in which the EBRD invests

Early

Bosnia and Herzegovina, Egypt, Kosovo, Kyrgyz Republic, Lebanon, Morocco, Tajikistan, Tunisia, Turkmenistan, Ukraine, Uzbekistan, West Bank and Gaza

Intermediate

Albania, Armenia, Azerbaijan, Belarus, Bulgaria, Georgia, Greece, Kazakhstan, Jordan, Moldova, Mongolia, Montenegro, North Macedonia, Romania, Russia, Serbia, Turkey

Advanced

Croatia, Cyprus, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic, Slovenia

Comparator countries

Canada, Czech Republic,  Germany, France, Japan, Sweden, UK, USA