Convergence of the Czech economy after EU accession and opportunities for the future

Experts from the Department of International Economic Relations of FIR at the VŠE prepared a background paper summarising the process of catching up or convergence of the Czech Republic towards the rich EU countries, for the FIR annual conference 2024 The next 20 years of the Czech Republic in the EU – a never-ending story of catching up with Europe?

The study suggests that the twenty years since the Czech Republic joined the European Union can be described as a successful period of economic convergence. This process has been driven mainly by foreign direct investment, inflows of EU funds and pressure to improve the institutional framework. Although the quality of Czech institutions is still falling behind, the influence of the EU has contributed to their gradual improvement. Several other analyses, such as the study by Chmelař and his team (2014) or the recent research by Erste Research in April 2024, also highlight this issue.

The econometric model, called Difference in Difference, shows that countries that joined the EU in 2004 experienced a significant increase in GDP growth. The results also show that both existing and new Member States benefited from EU membership, although the group considered experienced higher growth. This econometric modelling confirms the long-term benefits of EU membership for both new and existing Member States.

Among the areas that should be given more attention is, for example, the labour market. In spite of low fertility rates and a declining working age population, there are opportunities for improvement. These include, for example, opening up the labour market more to foreign (skilled) workers, encouraging parents of young children to return to work more quickly, and developing lifelong learning and retraining.

Although there is no single solution to increase the growth potential of the Czech economy, it is clear that a number of measures in key areas can lead to further strengthening of convergence and competitiveness. Other possible avenues for growth that need to be focused on are, for example, modernisation of the tax system or support for repatriation of foreign companies of domestic origin.

The full study can be downloaded here.