Poland s Competitiveness in 2008
Poland s Competitiveness in 2008
Marzenna A. Weresa
Marzenna A. Weresa
World Economy Research Institute
World Economy Research Institute
World Economy Faculty
World Economy Faculty
Warsaw School of Economics
Warsaw School of Economics
How to measure Poland scompetitive
How to measure Poland scompetitive
position in 2008?
position in 2008?
How to measure Poland scompetitive
How to measure Poland scompetitive
position in 2008?
position in 2008?
Competitiveness as a broad category embedded in the level
Competitiveness as a broad category embedded in the level
of a nation s prosperity. To measure Poland s comeptitve
of a nation s prosperity. To measure Poland s comeptitve
position we apply the following assessment criteria:
position we apply the following assessment criteria:
The current condition of the economy measured by the so-
The current condition of the economy measured by the so-
called  magic pentagon indices (GDP growth, inflation,
called  magic pentagon indices (GDP growth, inflation,
unemployment, public finance balance, and current-
unemployment, public finance balance, and current-
account balance);
account balance);
Living standards reflected by the GDP per capita level
Living standards reflected by the GDP per capita level
(in purchasing power parity or PPP terms) as well as by
(in purchasing power parity or PPP terms) as well as by
key social indicators such as life expectancy, infant
key social indicators such as life expectancy, infant
mortality, school enrollment, the Human Development
mortality, school enrollment, the Human Development
Index, income inequalities, and the incidence of poverty;
Index, income inequalities, and the incidence of poverty;
Position in external economic relations, determined by
Position in external economic relations, determined by
the capability to sell goods and services on the EU market
the capability to sell goods and services on the EU market
and the ability to attract FDI and other production factors.
and the ability to attract FDI and other production factors.
Some basic facts
Some basic facts
Poland is the largest of the 12 new member
states of the European Union in terms of area,
population, and the size of its economy.
In EU27, Poland is sixth in terms of area and
population, with 7.2% and 7.9% respectively.
In terms of GDP level, Poland ranks seventh, in
both PPP (4.2%) and OER terms (2.9%).
Poland s competitive position in 2008
Poland s competitive position in 2008
GDP growth reached 4.8%, ranking
Poland among the fastest-growing states
in the EU27 after Romania, Bulgaria, and
Slovakia.
GDP per capita was below the EU27
average; Poland s per capita GDP
amounted to Ź 14,400, versus Ź 25,900 in
the EU as a whole
Relative development levels in Poland, EU countries and
selected transition economies, 1989-2008 (GDP per capita
at PPP, Poland = 100)
1989 1992 2000 2004 2005 2006 2007 2008
Poland 100 100 100 100 100 100 100 100
Germany 279 350 246 230 228 217 215 201
France 268 320 239 218 216 209 204 194
Italy 274 327 242 211 204 198 190 176
UK 256 291 242 244 237 230 223 206
Spain 199 244 202 200 199 199 198 186
Ireland 195 252 271 280 281 282 282 252
Portugal 159 212 162 147 150 146 143 131
Greece 178 210 174 186 181 180 178 174
262 316 238 223 220 214 205 200
EU15 average
(38) (32) (42) (45) (46) (47) (48) (50)
Data in parentheses show Poland s development level as a percentage of the EU15 average
Relative development levels in Poland, EU countries and
selected transition economies, 1989-2008 (GDP per capita
at PPP, Poland = 100)
1989 1992 2000 2004 2005 2006 2007 2008
Poland 100 100 100 100 100 100 100 100
262 316 238 223 220 214 205 200
EU15 average
(38) (32) (42) (45) (46) (47) (48) (50)
Czech Rep. 197 194 142 148 150 148 150 148
Estonia 142 114 93 113 119 125 127 122
Hungary 146 140 116 125 123 122 117 113
Latvia 137 93 76 90 95 101 102 101
Lithuania 145 128 81 100 103 106 111 111
Slovakia 155 137 104 113 117 121 125 128
Slovenia 194 176 163 171 170 168 166 165
Bulgaria 122 108 58 67 69 70 70 71
Romania 89 79 54 67 69 73 79 79
Data in parentheses show Poland s development level as a percentage of the EU15 average
Poland is on its convergence path
towards the EU15
" Since 1989, the Poland s development
gap toward the EU15 average has
narrowed by more 12 percentage points.
" In 2008 alone, Poland gained 2 p.p.
" Despite this catching-up process in terms
of GDP per capita, Poland performed
below the EU27 average, outpacing only
two other EU members, Romania and
Bulgaria.
Relative development measured by
Relative development measured by
GDP
GDP
35000
30000
EU15
EU27
25000
Slovenia
Czech Republic
20000
Slovakia
Estonia
Hungary
Lithuania
15000
Latvia Poland
Bulgaria
Romania
10000
5000
0
-2 0 2 4 6 8 10
Real GDP growth rate in %, 2008
GDP per capita in Ź (in PPP), 2008
Poland s competitiveness
measured by the  Magic pentagon
GDP
" GDP growth (4.8%)
10
5
" inflation (4.3%),
0
10 10
20
20
INF 30
UNE
30
40
40
" current-account deficit
-7 -20
(-4.7% of GDP)
-4
-10
-1
0
10
2
" government deficit
GOV CAB
(-2.0% of GDP),
" unemployment rate
(7.2%)
GDP - GDP growth rate (%)
INF - Inflation rate (%)
UNE - Unemployment rate (%)
GOV - General government balance (% of GDP)
CAB - Current-account balance (% of GDP)
Poland s competitiveness
measured by the  Magic
pentagon
GDP - GDP growth rate (%)
INF - Inflation rate (%)
UNE - Unemployment rate
(%)
GOV - General government
balance (% of GDP)
CAB - Current-account
balance (% of GDP)
Human Development Index:
quality of life
" Poland was ranked 4th among the new
EU member states, behind Slovenia, the
Czech Republic, and Hungary, but ahead
of Slovakia, the three Baltic states,
Romania, and Bulgaria.
" An improvement was also noted in
income inequalities, which decreased
from 0.36 to 0.33, as measured by the
Gini coefficient.
How to measure Poland s
international competitive position
How to measure Poland s international
competitive position?
" ability to sell goods and services on the
EU market
" attractiveness to foreign direct investment
(FDI).
Poland s international competitive
Poland s international competitive
position: foreign trade
position: foreign trade
1. Poland s share in global trade was around 1% and
1. Poland s share in global trade was around 1% and
continued to be disproportionately low in relation to its
continued to be disproportionately low in relation to its
potential in terms of area, population, and the absolute
potential in terms of area, population, and the absolute
GDP level.
GDP level.
2. In 2008 imports grew faster than exports leading to a
2. In 2008 imports grew faster than exports leading to a
wider trade deficit.
wider trade deficit.
3. Poland s foreign trade dramatically decelerated in the
3. Poland s foreign trade dramatically decelerated in the
fourth quarter of 2008 as a result of the global financial
fourth quarter of 2008 as a result of the global financial
crisis, with a decrease in exports.
crisis, with a decrease in exports.
4. An even sharper decline in trade flows was recorded in
4. An even sharper decline in trade flows was recorded in
January 2009, which could presage a deterioration of
January 2009, which could presage a deterioration of
Poland s international competitive position for all of
Poland s international competitive position for all of
2009.
2009.
Revealed comparative advantage indices
(RCA)
where:
" means the exports of commodity group  i
from country  K to bloc  j ,
" imports of commodity group  i to country
 K from bloc  j ,
Revealed comparative advantage indices
(RCA) for Poland s intra-EU trade
Poland s international competitive
position: foreign trade
" In 2008, as in 2007, Poland s comparative advantages in
international trade relied mostly on the exportation of
traditional commodities.
" These included low value-added goods such as livestock
and animal products, crop products, minerals, leather,
wood, textiles, footwear and headgear, base metals, and
furniture.
" A new salient trend that appeared recently and was
enhanced last year involved some improvement in
Poland s comparative advantages in the trade of high
value-added goods easy to imitate.
Intra-industry trade
" Intra-industry trade is shown by the Grubel-Lloyd (GL)index:
The GL index ranges from 0 and 1.
Intra-industry trade is a difference between total trade and inter-industry trade.
The higher the GL index, the more intensive is intra-industry trade.
Intra-industry trade as a % of Poland s total
trade with the EU15 in 2000-2006
40
35
30
25
20
15
10
5
0
2000 2001 2002 2003 2004 2005 2006 2007
Source: Eurostat data
share of IIT in Poland's trade
Intra-industry trade
" Machines (section 16) and vehicles (section 17)
account for a large proportion of Poland s IIT
with both the EU15 and EU11.
" Good prospects for the development of IIT are
also available in the production of plastics
(section 7) and other chemical products (section
6).
" Agricultural goods and food products, especially
prepared foodstuffs (section 4), should rise to
prominence in Poland s IIT in the near future.
Poland s ability to attract foreign direct investment
Poland s ability to attract foreign direct investment
(FDI) (inflows and stocks)
(FDI) (inflows and stocks)
160 000 120,0%
140 000
100,0%
120 000
80,0%
100 000
80 000 60,0%
60 000
40,0%
40 000
20,0%
20 000
0 0,0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
FDI stock
Annual growth rate of FDI stock
Source: UNCTAD, 2008.
%
US$ million
The FDI inflow into Poland as a percentage
of the total inflow to the EU10 in 2007
Bulgaria
Romania
13.6%
15.8%
Slovenia
Estonia 2.3%
4.0%
Latvia
3.5%
Poland
28.5%
Lithuania
Hungary
3.1%
Czech
9%
Slovakia Republic
5.3% 14.8%
Poland s ability to attract FDI
Poland s ability to attract FDI
FDI in Poland last year was somewhat lower
FDI in Poland last year was somewhat lower
than in previous years, and it decreased further
than in previous years, and it decreased further
in the first quarter of 2009.
in the first quarter of 2009.
But&
But&
Poland managed to maintain its leading position
Poland managed to maintain its leading position
as the largest recipient of foreign capital among
as the largest recipient of foreign capital among
new EU member states last year, absorbing
new EU member states last year, absorbing
more than a fourth of all FDI flows into the EU10
more than a fourth of all FDI flows into the EU10
group.
group.
Investment attractiveness (IA) of
industry branches
FDI_IN jFDI_IN
"
ij j
:
IA =
FDI_OUT jFDI_OUT
ij " j
where:
FDI_INij = inflow of FDI into industry j of country i
FDI_OUTj = outflow of capital from country i abroad to industry j
"jFDI_INij = total FDI inflow into country i
"jFDI_OUTij = total outflow of direct investment from country I
Industries with an IA higher than 1 (IA>1) enjoyed a comparative advantage in
attracting FDI in the analyzed period, while an IA lower than 1 but higher than 0
(0>IA<1) indicates that the industry did not possess a comparative advantage in
attracting FDI.
IA in Poland in 2007
IA Index for
Industries
2007
AGRICULTURE AND FISHING 176.320
MINING AND QUARRYING -0.370
MANUFACTURING 1.632
- Food products 1.829
- Textiles and wearing apparel 0.148
- Wood, paper, publishing and printing 49.854
- Refined petroleum & other treatment 0.001
- Chemical products 1.256
- Rubber and plastic products 3.440
- Metal products 12.645
- Mechanical products 2.620
- Office machinery and computers 184.775
- Radio, TV, communication equipment 33.093
- Motor vehicles 7.629
- Other transport equipment 13.030
IA in Poland in 2007
IA Index for
Industries
2007
ELECTRICITY, GAS AND WATER 0.320
CONSTRUCTION 1.917
TRADE AND REPAIRS 0.922
HOTELS AND RESTAURANTS 18.594
TRANSPORT AND COMMUNICATION 9.633
- Land transport -1.354
- Sea and coastal water transport 0.206
- Telecommunications 55.669
FINANCIAL INTERMEDIATION 3.469
- Monetary intermediations 1.944
- Insurance & activities auxiliary 2.723
IA in Poland in 2007
IA Index for
Industries
2007
REAL ESTATE & BUSINESS ACTIVITIES 0.498
- Real estate 0.936
- Computer activities -0.079
- Research & development 6.393
- Other business activities 0.382
- of which: Business and management consultancy 0.366
- Promotion 14.490
OTHER SERVICES 1.597
OTHER ACTIVITIES, NON ALLOCATED 2.393
PRIVATE PURCHASES & SALES OF REAL ESTATE 2.011
The most attractive industries for FDI in Poland in
The most attractive industries for FDI in Poland in
2008
2008
In manufacturing Poland had relatively high
In manufacturing Poland had relatively high
advantages for FDI in sectors such as
advantages for FDI in sectors such as
production of office machinery and computers;
production of office machinery and computers;
wood and paper processing; publishing and
wood and paper processing; publishing and
printing; production of radio, television and
printing; production of radio, television and
communications equipment.
communications equipment.
In the service sector, the most attractive
In the service sector, the most attractive
industries for FDI were: telecommunications,
industries for FDI were: telecommunications,
R&D services, promotion.
R&D services, promotion.
However& .
However& .
Inward FDI Performance Index was the
Inward FDI Performance Index was the
lowest among the Visegrad countries
lowest among the Visegrad countries
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0,000
Poland Hungary Slovakia Czech Republic
Source: Based of UNCTAD data.
1990-92
1991-93
1992-94
1993-95
1994-96
1996-98
1997-99
1998-2000
1999-2001
2000-2002
2001-2003
2002-2004
2003-2005
2004-2006
Drivers of Poland s
Drivers of Poland s
competitiveness in 2008
competitiveness in 2008
Domestic demand, in particular
Domestic demand, in particular
investment
investment
Human resources
Human resources
Total factor productivity
Total factor productivity
The growth of total factor productivity
The growth of total factor productivity
(TFP) played a less important role as a
(TFP) played a less important role as a
competitiveness driver in 2008.
competitiveness driver in 2008.
An economic slowdown caused by the
An economic slowdown caused by the
global financial crisis negatively affected
global financial crisis negatively affected
the 2008 TFP growth rate
the 2008 TFP growth rate
TFP contribution to the GDP was only
TFP contribution to the GDP was only
26.8%, the lowest since 1998.
26.8%, the lowest since 1998.
Main obstacles to the improvement
Main obstacles to the improvement
of Poland s competitiveness in 2008
of Poland s competitiveness in 2008
Lack of the significant progress in the
Lack of the significant progress in the
development of infrastructure, including
development of infrastructure, including
highway construction (;
highway construction (;
Stagnation in Poland s technology and
Stagnation in Poland s technology and
innovation performance;
innovation performance;
Total R&D expenditures as a
percentage of GDP in selected
EU countries
1.9%
2
Average for
1,8
the EU27
1,6
1.4%
1,4
1.2%
1,2
1
0.8%
0,8
0.64%
0,6
0,4
0,2
0
Slovenia Czech Hungary Poland
Rep.
Policy measures that had negative impact
Policy measures that had negative impact
on Poland s competitiveness in 2008
on Poland s competitiveness in 2008
Economic reforms, especially those of
Economic reforms, especially those of
public finance, were limited;
public finance, were limited;
The privatization of state-owned
The privatization of state-owned
enterprises did not meet the planned
enterprises did not meet the planned
targets;
targets;
There was limited progress in improving
There was limited progress in improving
the business/institutional environment.
the business/institutional environment.
Policy measures that had positive impact
Policy measures that had positive impact
on Poland s competitiveness in 2008
on Poland s competitiveness in 2008
cuts in the personal income tax ,
cuts in the personal income tax ,
the Polish government s determination to
the Polish government s determination to
maintain budget discipline in response to
maintain budget discipline in response to
recessionary trends
recessionary trends
Challenges for Poland in 2009
Challenges for Poland in 2009
To face global recession
To face global recession
To keep unemployment under control,
To keep unemployment under control,
To maintain a positive GDP growth rate
To maintain a positive GDP growth rate
In order to cope with these challenges, indispensable
In order to cope with these challenges, indispensable
are:
are:
productivity increases
productivity increases
further institutional changes,
further institutional changes,
higher investments in knowledge generation and
higher investments in knowledge generation and
diffusion
diffusion
These measures might be insufficient to enhance
These measures might be insufficient to enhance
competitiveness at a time of crisis.
competitiveness at a time of crisis.
Therefore, the foundation of the country s competitive
Therefore, the foundation of the country s competitive
advantage needs to be redefined.
advantage needs to be redefined.