According to Research Fellow Dalia Marin in Discussion Paper No. 1116, Austria's post-war development path is marked by three features: Austria was among the countries with the fastest convergence rate; at the same time, the country's movement up the technological ladder was slow compared with other European countries; and growth came about with a small relative share of R&D in GDP. The author uses insights from recent dynamic theories of trade to explain these three stylized facts. She argues that resource endowments, international knowledge spillovers, learning, and government policy have all contributed to Austria's post-war growth and the evolution of its pattern of trade over time.

The paper then looks at two lessons for Eastern Europe: first, that Austria represents a possible economic case for a gradual approach to economic reform; and second, that the Austrian experience can be used to assess the right mix of industrial and trade policy for economies in transition. The relatively slow rate of structural transformation is seen to have helped Austria avoid pushing itself into technologies too far ahead of itself, and enabling it to profit from learning by doing. Furthermore, the Austrian experience might also provide policy lessons for technology policy in the EU: subsidizing R&D can be counterproductive, and might crowd out a country's high-tech sector, thus leading to a decline in its specialization in high-tech.

Learning and Dynamic Comparative Advantage: Lessons From Austria's Post-war Pattern of Growth for Eastern Europe
Dalia Marin

Discussion Paper No. 1116, February 1995 (IT)