Prelims

Half Title Page

Modeling Economic Growth in Contemporary Slovakia

Series Title Page

Entrepreneurship and Global Economic Growth

Series editor: Bruno S. Sergi, Harvard University, USA

Entrepreneurship and Global Economic Growth is Emerald's cutting-edge Global Economic Growth book series, presenting modern examinations of economic growth at national, regional, and global levels. Each book in this series discusses different dimensions of the changing economic and industrial contexts and examines in detail their impact on the nature of growth and development. For academics and senior practitioners, this series puts forward significant new research in the global economic growth field, opening discussions regarding new topics and updating existing literature.

Title Page

Modeling Economic Growth in Contemporary Slovakia

Edited by

Michael Augustín

University of Economics in Bratislava, Slovakia and Slovak Academy of Sciences, Slovakia

Peter Jančovič

University of Economics in Bratislava, Slovakia

And

Bruno S. Sergi

Harvard University, USA and University of Messina, Italy

United Kingdom – North America – Japan – India – Malaysia – China

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First edition 2025

Editorial matter and selection © 2025 Michael Augustín, Peter Jančovič and Bruno S. Sergi.

Individual chapters © 2025 The authors.

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ISBN: 978-1-83549-455-4 (Print)

ISBN: 978-1-83549-454-7 (Online)

ISBN: 978-1-83549-456-1 (Epub)

List of Figures and Tables

About the Editors

Michael Augustín is an Associate Professor at the Faculty of International Relations at the University of Economics in Bratislava, Slovak Republic. He also works as a Senior Researcher at the Institute of Political Science of the Slovak Academy of Sciences in Bratislava. His expertise spans political science and international relations. It covers various areas, including political theory, recent economic, social, and political development in Slovakia, France, Armenian-Azerbaijani relations, the Helsinki Process, and the OSCE. He is the author or coauthor of over 70 academic journal articles, conference papers, book chapters, textbooks, magazine, and newspaper columns.

Peter Jančovič holds a PhD in Economics. He is an Assistant Professor at the Department of International Economic Relations and Economic Diplomacy, Faculty of International Relations, University of Economics in Bratislava, Slovak Republic. He teaches the courses International Economic Relations and World Economy. His research area covers international economics and international economic relations, particularly focusing on international capital flows, personal remittances, and international development assistance. From a regional perspective, he specializes in the Latin American and Caribbean region, its economic development and position in the global economy.

Bruno S. Sergi teaches courses at Harvard, specifically focusing on development economics and the economics of emerging markets. His current research interests span the political economy of emerging markets and encompass sustainable development, technology, and global development practices. At Harvard, he is a Faculty Associate at the Harvard Center for International Development and an Associate at the Davis Center for Russian and Eurasian Studies. He also teaches International Political Economy at the University of Messina, Italy. He serves on multiple academic advisory boards in Europe and Asia. Furthermore, he is the Series Editor of Cambridge Elements in the Economics of Emerging Markets and the co-director of the Lab for Entrepreneurship and Development (LEAD), a research lab based in Cambridge that aims to generate and share knowledge about entrepreneurship, development, and sustainability.

About the Contributors

Kristína Baculáková, University of Economics in Bratislava, Slovakia, graduated in 2012 from the Faculty of International Relations, University of Economics in Bratislava, Slovakia. In 2016, she obtained a PhD degree in International Economic Relations at the same Faculty. She is currently working as an Associate Professor and Vice-Dean for Development at the Faculty of International Relations, University of Economics in Bratislava. She collaborated in several public projects to support culture and creative industry in Slovakia. She is an author of more than 70 publications. Her research interests include cultural and creative industries and smart city solutions. She leads the Model UN at the Faculty of International Relations.

Ingrid Brocková has been the Ambassador of Slovakia to the Czech Republic since September 2023. Prior to that, she was the State Secretary of the Ministry of Foreign and European Affairs (MFEA SR) of the Slovak Republic (2020–2023), the Ambassador and Permanent Representative of the Slovak Republic to the OECD (2011–2015, 2018–2020), the Director General for Economic Cooperation at the MFEA SR (2015–2018), and the Country Manager of the World Bank in Slovakia (2001–2008). She joined the MFEA SR in 1993; her expertise is mainly in economic diplomacy and development assistance agenda. Mrs Brocková was born in 1963. She holds a Doctorate in Economics (PhD) from the Slovak Technical University, Bratislava (1991). In 1999, she obtained a Master's in International Public Policy (MIPP) from the Paul H.Nitze School of Advanced International Studies at the Johns Hopkins University in Washington, DC, USA.

Jakub Csabay currently teaches at the Institute of European Studies and International Relations, Faculty of Social and Economic Sciences, Comenius University. He completed his PhD research on Institutional Dynamics of State-Minority Relations in Slovakia and Azerbaijan at the Center of Development Studies, University of Cambridge. He is a research affiliate of the Cambridge Central Asia Forum, and he co-founded the Cambridge Central European Conference. He has worked as a consultant to both private and public sector clients, and he had also previously supervised students at the Department of Politics and International Studies and Judge Business School in Cambridge. In Slovakia, he co-founded two civic associations, EDUSOC and RESDI, focused on educational and sustainable development projects for minorities, in particular Roma communities. Together with Anton Marcinčin, he co-edits the Yearbook of Regional Development in Slovakia, and he is also a collaborator of the Friends of the Earth-CEPA, working on energy poverty and engagement with academic institutions and municipalities.

Peter Daubner is a Political Scientist, Political Philosopher, and Political Economist. He works as a State Advisor in the Chancellery of the National Council of the Slovak Republic and as a researcher at the Institute of Philosophy of the Slovak Academy of Sciences. He specializes in neo- and post-Marxist political and social philosophy, environmental philosophy, European affairs, international relations, and political economy of capitalism.

Tomáš Dudáš is a Professor at the Faculty of Economics and Entrepreneurship of the Pan-European University. His research mainly focuses on international economic relations, with a specialization in the field of foreign direct investment and national competitiveness. Lately, he has been working on developing the national competitiveness of Central European countries, as well as studying the impact of FDI on the Slovak economy. He is a well-known Slovak expert on the global economy and is often featured in Slovak media. Additionally, he has authored several monographs and university textbooks, as well as more than a dozen articles in journals indexed in the Web of Science and Scopus databases.

Eva Horvátová is a Professor of Finance at the University of Economics in Bratislava and at the Masaryk University in Brno. She lectures on Banking and works with PhD students. She has written monographs and scientific articles on banking, financial regulation, and financial markets. She attended lectures and study stays in Luxembourg, Portugal, Germany, and Switzerland. Eva is also engaged in practical appraisal activities in the area of finance, controlling, and valuation of banks and financial institutions. In the period 2007–2020, she was the Head of the Department of Banking and International Finance at the Faculty of National Economy, University of Economics in Bratislava.

Ladislav Kabát is a Professor at the Bratislava University of Economics and Management (BUEM). He got his MS degree from the Economic University in Bratislava. The PhD program completed at the Plekhanov Institute of National Economy in Moscow in Operation Research and consequently continued as a University Teacher in Slovakia. As a Visiting Lecturer, he spent one semester at the University of Ghana in Legon (Accra). He established academic cooperation with US universities, namely Cornell University, Texas AM University, West Virginia University, and the University of Delaware (as a visiting professor). In 1996, he was appointed to the position of Director of the (UN) FAO Statistical Division in Rome, where participated in building statistical systems in developing countries until 2001. After completing this mission, he continues his academic career in Bratislava. His research is oriented on the quality of economic data and econometric models' applications.

Lubor Lacina is a Professor of Economics at Mendel University in Brno, Czech Republic. He is Jean Monnet Chair in Economic Studies and the Director of Jean Monet Center of Excellence. He is the author or editor of several monographs on European economic and political integration like Palgrave Macmillan (2008): Economic Performance of European Union. He is the editor of policy paper series providing suggestion for further process of deepening economic and political integration in EU.

Katarína Lukáčová is a Researcher who is involved in projects dealing with changing work and employment in the context of digital and green fair transformation, with expertise on transforming sectors (automotive, coal mining, energy, steel, metal, etc.). She specializes in economic/labor sociology, with a focus on social dialogue, work organization, and social dialogue/collective bargaining. She is currently finalizing PhD dissertation in Transnational Governance at the SNS/SSSA in Florence, Italy. As a junior human capital development expert in the ETF, she cooperates with various political and social partner organizations across European neighborhood on the projects related to governance of social partnership and skill development.

Anton Marcinčin is an economist, a former government plenipotentiary for underdeveloped regions, advisor to the Minister of Finance, member of parliament, and country economist at the World Bank in Bratislava. He published dozens of articles, lectured at several universities, and participated in many international research activities. Since 2021, he has co-edited and contributed to the Yearbook of Regional Development; in 2009, he coauthored Cost of Roma Non-inclusion; in 2000, the Economic Policy in Slovakia 1990–1999. Since 2007, he has regularly published columns in a daily Hospodárske noviny, and since 2015 in a daily Pravda. Marcinčin graduated from the Czech Technical University in Prague and CERGE-EI Prague and defended his PhD in Economics at Charles University in Prague. He has received scholarships and fellowships at the Tinbergen Institute Amsterdam and LSE London.

Monika Martišková, PhD, is a Researcher at Central European Labor Studies Institute (CELSI) Bratislava, Slovakia, and at the department of Social Geography and Regional Development at Charles University in Prague, Czechia. She is interested in industrial relations and collective bargaining in CEE countries focusing on automotive industry. In her most recent research, she focuses on effects of decarbonization on the labor market and working conditions in industrial sectors. She has been involved in several research projects supported by European Commission that concentrated on the responses of social partners on challenges on the labor market in Czechia and Slovakia in the private and public sectors. In 2022, she defended her PhD thesis at Charles University on the topic of labor in global production networks studied on the example of trade unions in the automotive industry in Czechia and Slovakia.

Renáta Pitoňáková is a Professor at the University of Economics in Bratislava, Faculty of International Relations, Department of International Economic Relations and Economic Diplomacy. She graduated from the University of Economics in Bratislava (Faculty of Commerce) and Comenius University in Bratislava (Faculty of Arts). Professor Pitoňáková teaches courses on international economic relations and world economy, finances, banking, and monetary policy. Her scientific and research areas cover international trade, finance, and monetary policy. She was the Principal Investigator of the International Project granted by the International Visegrad Fund and the leader of several domestic scientific projects of the VEGA framework granted by the Ministry of Education, Research, Development and Youth of the Slovak Republic and APVV project financed by the Slovak Research and Development Agency.

Professor Juraj Sipko is a member of the European Academy of Science and Art, and he is a member of the European Economic and Social Committee. In this Committee, he is the President of the International Trade Follow-up Committee and the President of Economic and Fiscal Governance of the Euro Area. He is also a Lecturer at the Pan-European University in Bratislava and the Tomas Bata University in Zlin. The last 8 years, he was the Director of the Institute of Economic Research of the Slovak Academy of Sciences (SAS). He has worked as an advisor to governors of the National Bank of Slovakia. For six years, he advised the executive directors of the Belgium constituency in both the International Monetary Fund and the World Bank. Furthermore, he also served more than 6 years as a Director of International Relations of the Ministry of Finance of the Slovak Republic and as a negotiator with the European Union and the OECD. He spent one year as a Visiting Scholar at the Massachusetts Institute of Technology and participated in the executive programs at Harvard Business School (Harvard University) and the Wharton Business School (University of Pennsylvania). He also participated in research studies in St. Thomas University Cameron School of Business (Houston), Cass Business School (London), Lomonosovova University (Moscow). Mr. Sipko has published numerous research papers, articles, and books, and he has also participated in many foreign and domestic international conferences and workshops.

Dunja Spasojević is a master student at Mendel University in Brno, Czech Republic. Her research interest is in the area of economic impacts of EU enlargement from the point of view of candidate countries and the EU budget. She focuses empirically on economic development of new member countries of EU and candidate countries.

Jakub Szabó is a Postdoctoral Researcher at the Institute of European Studies and International Relations, Faculty of Social and Economic Sciences, at Comenius University in Bratislava. With teaching commitments and interests in quantitative social science, his research concentration includes comparative and international political economy with a focus on the European Union, Eurozone, and post-communist EU countries, EU economic governance, and differentiation in European integration.

Jaroslav Vokoun is a Researcher at the Slovak Academy of Sciences, Institute of Economic Research. His research focuses on competitiveness and the knowledge society. He has contributed to projects like “Vision and Strategy of the Slovak Society Development” (2008–2010) and “National Priorities for the Implementation of the Agenda 2030 Strategy” (2018). He is the co-author of publications: Attractiveness of the Territory and Mobility of Talents: Big Cities Attract Talents (2020), Creating and Evaluating the Knowledge Society Potential (2017), Motivation of Actors in the Direction to the Knowledge Society (2014), Cooperation of Actors in Technological and Innovative Development (2011), and Technological and Innovative Development in the Slovak Republic (2005).

Natália Zagoršeková is an Assistant Professor at the Faculty of International Relations, University of Economics in Bratislava, Slovakia. In her research, she focuses on the individual economies of the European Union and also on Africa. She currently teaches courses on the economies of the European Union and Africa in international relations. She recently wrote a textbook on the economies of the European Union.

Preface

Ingrid Brocková

Ministry of Foreign and European Affairs of the Slovak Republic

Slovakia is a successful story of the economic transition and integration into the transatlantic security and economic structures. The year 2024 is the year of commemoration of the 31st anniversary of establishing an independent state, 20 years of membership in the European Union (EU) and NATO, and 15 years in the Eurozone. The integration process was the anchor and accelerator of the economy's transition. It meant a long-term effort and required a whole-of-government approach. Membership in the European Union and Eurozone has become a key policy framework for Slovakia's economic policy; encoring Slovakia in the system of other international organizations has become a tool for the prevention of populism.

After an ambitious reform agenda (1999–2006), Slovakia deservedly earned a reputation as the leading reformer in Central Europe, as the Slovak economy became the fastest growing in the European Union. Comprehensive and significant changes in public policy enabled the country to achieve a qualitative turnaround in its international status: it gained membership in the OECD, NATO, and European Union, acquired one of the top credit ratings among transition economies, and attracted an increasing share of foreign investments. In January 2009, this success was emphasized when Slovakia joined the Eurozone.

The Slovak authorities established a solid track record of economic adjustment and broad-based reforms. As a matter of priority, Slovakia had to address fundamental systemic problems, particularly related to the transparency and effectiveness of financial flows in almost all sectors and to the building of institutional capacity. The robust driver of the economic changes was the accession to the OECD and European Union, complemented by the World Bank programs such as improving the stability and efficiency of the banking and enterprise sector, social benefits administration, provision of social services, public finance management, and the performance of the health care system. In the context of accession, this involved mainly advisory activities that played a vital role. In 2002, for example, the World Bank conducted a comprehensive economic review focusing on Slovakia's readiness for EU accession (Development Policy Review) as well as a key document on agriculture (Food and Agriculture in the Slovak Republic: the Challenge of EU Accession, published in 2003). Both documents recommended how to proceed in the accession process to maximize the benefits and minimize the costs related to the EU accession. The World Bank portfolio in the Slovak Republic had never been large in terms of the number of loans. However, in a few years, it succeeded in becoming quite diverse and substantive when it comes to the advisory role of the government.

The EU became the key policy framework for Slovakia's economic policy. Membership in the EU means the privilege and responsibility: the privilege to participate in many of the EU policymaking institutions, policymaking process, and to take full advantage of the resources that became available from the EU itself and to use those resources well to address the development challenges (especially well-equipped administrative structures and skills). Membership means responsibility for implementing EU legislation. Slovakia, being already a member of the EU, needed to build capacities that would allow Slovakia to fully benefit from the EU membership. That meant capacities to facilitate knowledge and expertise sharing, conducting analytical work, and evidence-based decision-making processes. At that time, Slovakia was facing three broad development challenges: (i) to continue the prudent management of the economy; (ii) to converge to European income levels and be competitive on the European and world markets; (iii) to reduce poverty and unemployment, and to address the problems of marginalized groups of the population, especially Roma community.

What was important after accession to the EU was maintaining the reform dynamism. In Slovakia, the spirit of reform and a new way of looking at economic and social challenges prevailed. During the initial process of acceding to the OECD and the EU, the requirements for successful accession heavily influenced the reform agenda in Slovakia. The reform process has been so well internalized and successful that Slovakia addressed problems in some areas by applying the best practices from the OECD and non-EU countries. Slovakia has introduced far-reaching economic systemic changes, often beyond the EU requirements: social security networks and pension systems were overhauled, the share of agriculture in GDP dramatically decreased, the business climate improved, the labor market was not overregulated, and the tax burden was relatively low. Managing economic policies meant converging to the EU and OECD levels as quickly as possible. The essential prerequisites for success were political leadership, commitment, and government ownership of the reform agenda. That was the so-called “Tatra Tiger” period.

Slovakia has made commendable progress, aiming to meet the Maastricht criteria to join the Eurozone in January 2009. The priority of the government then was to focus (i) on the quality and sustainability of growth (increasing employment and competitiveness), (ii) on protecting social cohesion and reducing poverty, and (iii) on strengthening public administration and capacities for the efficient utilization of the EU funds. Many challenges, such as investment in infrastructure, health care, and education, persist still today. The priority of the medium-term horizon is to ensure labor productivity growth to foster an efficient and competitive business environment to sustain the economic growth necessary to accelerate convergence. That means keeping the reform dynamics in the country.

Slovakia needs a new economic model. Slovakia's dynamic growth has depended mainly on export-oriented manufacturing and foreign direct investments; located largely in western Slovakia, the central and eastern parts of the country are lagging. Slovakia benefits from strong links with the world economy, especially the EU members. However, international trade tensions and volatility pose risks to Slovakia's open, export-oriented economy. To a greater extent, the Slovak economy's vulnerability is higher than most other OECD countries. Slovak production focuses mainly on low-value-added downstream activities. Strong productivity growth has arisen from joining global value chains, mainly in labor-intensive segments such as car assembly. Large foreign investment inflows have helped develop a competitive export-led manufacturing industry, with a strong specialization in the automotive and electronics sectors, fostering robust growth and productivity performance. To sustain economic progress, Slovakia will have to move beyond this approach. Low research and development expenditures limit productivity growth going forward. Sustaining past productivity improvements, primarily based on integration into global value chains, will require strengthening Slovakia's capacity to innovate and adopt new technologies. The quality of the academic research system must be improved, and collaboration with companies' R&D must be expanded.

The local value-added content of exports is relatively low, and skills shortages may deter future investment. Foreign investors have already asked for additional immigration to ease the supply of skilled workers. Success has been based on a narrow range of industries. Smaller or domestically owned firms, especially in services, have not benefited from spillovers, needing access to financial sources to innovate and develop, thus falling further behind in international productivity comparisons. Slovakia must invest in skills and adaptability to labor market developments, as the risk of automation is more acute than elsewhere. It also needs to develop its capacity to innovate and adopt new technologies.

The transition to a greener economy, supported by international environmental commitments and national policies, will entail structural changes in consumption patterns and industry structures and offer new drivers for potential growth. Slovakia will need to build a practical framework for green growth to maximize the exploitation of cleaner sources of growth and seize the opportunities to develop new green industries, jobs, and technologies. This requires addressing environmental externalities by extending environmental taxation and removing subsidies, together with improving the economy's adaptive capacities through eco-innovation.

The main priorities are to restore public finances while fostering domestic growth drivers and ensuring the funding of items to promote growth, such as education and active labor market policies. Educational outcomes have declined throughout the years in Slovakia, and the education system does not do a good enough job of preparing students for the labor market. At the same time, many young, talented Slovaks are studying and working abroad. Improving educational outcomes and investing in skills should be a priority. The decline in educational performance must be reversed, and more must be done to improve the chances of children from poorer backgrounds. Early childhood education and better trained and paid teachers are necessary for this transformation. Good vocational education is essential for improving the skills needed in the labor market.

Population aging in Slovakia, projected to be one of the sharpest in the OECD, will pose a long-term challenge for fiscal policy and higher living standards. As the old-age dependency ratio rises steeply in the longer term, fiscal pressure intensifies. In this respect, the parameters of the pension system would be essential. Reinforcing spending reviews and better integrating the results into medium-term budget planning could help increase efficiency and release funds for priorities such as education and social inclusion.

Slovakia has traditionally been a country with significant regional disparities. Regional inequality is among the highest in the OECD; not everyone has benefited equally from growth. Long-term unemployment remains prevalent in the east and some central regions. The socioeconomic situation of the Roma calls for urgent policy action. Skills shortages in the Bratislava region persist alongside skills mismatches and uneven availability of technological and human resources in the central and eastern regions. Inadequate transport infrastructure raises costs for those who might establish firms in the lagging regions. The mobility of low-skilled unemployed is hampered by the lack of affordable housing where the jobs are and the lack of prioritization of active labor market policies. At the same time, regional job creation is often hindered by the weak response of local labor costs to local labor market outcomes. The school-to-work transition is weak, and vocational education does not provide adequate skills, one of the main barriers to regional development. Unequal educational opportunities, particularly for the Roma population, also hold back inclusive growth. Most of the Roma (who make up around 8%–10% of the population) live in poverty and face social exclusion in most aspects of everyday life. Most suffer from long spells of unemployment and low life expectancy. The Roma needs better access to education, health, employment, and other public services. More live in isolated or segregated communities and have low educational levels and high school dropout rates. Although public services are available in principle, language barriers, a lack of awareness of available programs, and discrimination hamper access.

Slovakia is generally underperforming in terms of public sector efficiency, which reduces the room for maneuvering for fiscal consolidation and financing growth-friendly measures. The public sector lags on the application of e-government and e-procurement. Practiced human resource management has resulted in a high staff turnover. The regulatory framework and judicial system remain insufficiently supportive of business activity, and perceived corruption impedes growth. The efficiency of public spending and the absorption of EU funds suffer from a lack of systematic evaluation and coordination between ministries, cumbersome procedures, and weak administrative capacity. Public–private partnerships had to be canceled because of nontransparent procedures and high financing costs. Strong centralization has weakened the incentives for efficiency at the subnational level, and many municipalities are too small to provide public services efficiently.

Deploying reliable digital infrastructure and enhancing digital government services is critical to enabling digital transformation across the economy and society. Further improving the business environment can foster business dynamism. Despite progress in reducing administrative burdens, regulations in several areas, especially for start-up firms, remain more restrictive than in other EU countries. Continuing judiciary reforms are needed to fight corruption and foster efficiency and trust. Given the deterioration of public finances, there is little scope for higher spending without reprioritization. In such a situation, raising public sector efficiency can free up resources and help to stimulate productivity and, thus, potential growth.

Each government sets up an ambitious reform program, emphasizing reforms and investment in education, health care, and a greener economy and innovation. Further efforts are needed to raise Slovakia's chronically low absorption rate of EU funds by streamlining public procurement and enhancing public investment governance.

Historically, based mainly on integration into global value chains, sustaining productivity gains has been essential to revive economic convergence and boost living standards in Slovakia's aging society. It requires strengthening Slovakia's capacity to innovate and adopt new technologies also implementing necessary systemic measures such as:

• Building national capacity for strategic foresight to identify megatrends and their impact on vulnerability to external and internal shocks, thus building the resilience of the Slovak society.

• Slovakia needs a new economic model to ensure prosperity and competitiveness by addressing connectivity, education quality, the economy's structure (with the dominance of small- and medium-sized companies), and innovation capacity.

• Public administration needs to improve analytical capacity, evidence-based policymaking, and the ability to learn and be inspired by the good practices of other countries, especially in allocating available EU funds. That calls for a more efficient institutional structure, governance, and integrity of the public sector.

• Vision, political commitment, and stability. Slovakia is a country without continuity; what has been evident is sectors where changes require a more extended period than one election cycle. The country's vision is the fundamental prerequisite to spending wisely on EU funds to accelerate Slovakia's development challenges. Inclusive, sustainable, and green growth will not be achieved without the engagement and partnership of the private, public sector, and academic communities. Slovakia needs a whole-of-society approach.

I am convinced that the presented publication and its authors accurately reflect the state of play of the Slovak economy and outline recommendations on how to address the current challenges and create a new economic model for ensuring better prosperity in Slovakia.