Economic Development

Where does economic growth really come from and what can B&H do about it

I’ve been listening to Pitchfork Economics podcast Where does economic growth really come from? and it’s great. Here‘s a link. This concrete podcast is part of a greater series that I still have to explore, but this episode alone has a few very useful insights and great guests: W. Brian Arthur and César A. Hidalgo. Later I added a few of my thoughts about it from the perspective of a country I live in.

So, where does it come from?

The answer to the central question – Where does economic growth comes from? – doesn’t look promising for countries in transition like Bosnia and Herzegovina. As Cesar Hidalgo says, it comes from an accumulation of knowledge. Knowledge is present in B&H, but mostly from the previous Yugoslav period, that was marked as the period of large industrial complexes and institutes, and my impression is that it’s decreasing as time passes by. Previous systems for importing and developing knowledge are gone or outdated.

What can countries in transition do to help themselves?

I don’t think we are capable to create new knowledge, and that probably isn’t even necessary. However, we do need to import knowledge.  I believe we should start from what we have now, how we are currently importing the knowledge. Then we should look at how to widen those flows of knowledge and how to get more knowledge into our economy.

Regarding those flows, or ways how knowledge is imported to local firms (local economy), here are some that I’ve noticed:

  1. Enterprises are importing knowledge when they buy new machines. With a machine they get help from a seller on how it works and how to set it up. This is usually not the case with used machines. When an enterprise buys a new machine, it usually employs one, two or several workers, so this has several benefits.
  2. Knowledge is also imported when our enterprises visit EU-located leading enterprises, institutes, fairs, etc.
  3. When local people, who left to work in Germany or Austria some time ago come back to open their own firms in Bosnia and Herzegovina, they come back with the knowledge they got while working there, so in a way, we do import that knowledge. Also, foreign investors do the same, they bring know-how.
  4. From buyers with whom our firms are cooperating with, especially demanding ones. Buyers help local firms to fill the small gaps they have in order to produce parts that they require.
  5. Consultants. When you ask enterprises: “Who do you call when you have a problem?”, you will often hear their names. They are usually working at faculties as professors.

If you are reading this and have some other flow on your mind, please write it in the comments section.

Another approach would be to “import” people with knowledge, but just like creating the knowledge, that doesn’t sound too realistic either. People from other countries with an educated population don’t usually perceive B&H as an attractive country to move to, and those who would maybe want to move aren’t perceived by B&H society as attractive immigrants. In addition to that, people from B&H mostly don’t perceive B&H as an attractive country to live in either.


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