Human Face of Development Vladimir Gligorov

Contents River and peoples Mobility Dealing with institutions Diverging development Dealing with transition and crisis Labour demand and skills Conclusion

River and Peoples River is like an infrastructure investment It is a source of externalities and agglomeration Favours urbanisation and diversity Supports industry and services, especially trade and finance

Mobility and labour market Danube provides for increased advantages to mobility of goods, capital, services, ideas and people Migration provides for larger labour market and better allocation of capabilities Also, traditionally, and escape route

Dealing with Institutions Externalities and human agglomeration are supportive of development with the right institutions However, distributional problems can be hard to solve Both in the case of the common goods and common bads Traditionally, institutions mismanaged

Diverging Development The difference in development (human capital, structure of production, income levels) is quite high and persistent In a sense, development does not seem to travel downstream

Dealing with Transition and Crisis Transition has not brought tremendous successes in convergence It has been hard on employment It has not supported industrialisation in a number of Danube countries It has favoured capital cities over the rest of the countries Crisis has reversed some of the gains and added to the institutional problems

Transition and Crisis Convergence limited (not sustained) and often divergence Uneven industrial development Significant imbalances – especially in external balances in most countries Labour market underperformance: low employment levels and high unemployment levels Strong effects of the crisis Capital flow reversal

De- and re-industrialization processes continue to be decisive (Industrial production – level relative to 1989: 1995, 2000, 2008)

Development of GDP and gross industrial production, Industrial production contracting more strongly than GDP Source: wiiw Database incorporating national and Eurostat statistics, own calculations.

Development of gross industrial production (real) September 2008 = 100 Source: wiiw Monthly Database incorporating national and Eurostat statistics.

Source: Eurostat. Youth unemployment (15-24) and long-term unemployment (more than 12 months) have increased strongly

External imbalances: composition of the current account of the balance of payments, , in % of GDP Source: wiiw Database incorporating national and Eurostat statistics.

Source: BIS. Foreign banks reduce their balance sheets in Southeast Europe, Russia and Ukraine Consolidated foreign claims on banks, USD million

Labour Demand and Skills In a number of countries skill levels are higher than the GDP per capita warrants In addition to this structural problem, the overall demand for employment is low The policy of austerity is contributing negatively to the labour market Employment falling fast in most countries And long-term unemployment is increasing, which suggests significant loss in human capital

Conclusion There are significant convergence potentials Policy framework inadequate High human cost