Economic Complexity in CEE Countries: The Role of Innovations, Investments and Education

Abstract

Research Question: How do foreign direct investment (FDI), research and development (R&D) expenditure, and tertiary education enrolment influence economic complexity in Central and Eastern European (CEE) countries? Motivation: Economic complexity is a key driver of industrial sophistication and long-term competitiveness. While prior research (Hidalgo & Hausmann, 2009; Liu & Gao, 2020; Neagu, Neagu, & Gavurova, 2022) links complexity to growth, limited studies focus on its determinants in transition economies. CEE countries provide an ideal case to examine how FDI, R&D, and tertiary education affect economic sophistication. This study fills a gap by assessing whether these factors enhance complexity or introduce inefficiencies. A key novelty is the negative relationship between tertiary education and economic complexity, suggesting labour market misalignment, brain drain, and educational inefficiencies. Idea: This research examines the relationship between FDI, R&D, and tertiary education enrolment as key determinants of the Economic Complexity Index (ECI). It explores whether FDI facilitates technology transfer, R&D enhances industrial sophistication, and education strengthens human capital, or whether inefficiencies hinder transformation. Data: A balanced panel dataset (1998–2021) covering 11 CEE countries, sourced from the Atlas of Economic Complexity, UNCTAD, and the World Bank. Tools: Applied methodology includes Pesaran’s CD test, CIPS unit root test, Westerlund cointegration, PCSE regressions, and robustness checks via FGLS. Nonlinear effects are examined through quadratic and categorical models. Findings: FDI and R&D positively influence complexity. Tertiary enrolment negatively correlates with complexity. Contribution: The study offers policy insights for aligning investment, innovation, and education systems in CEE countries.