Learning and Dynamic Comparative Advantage: Lessons from Austria's Post-war Pattern of Growth for Eastern Europe

This paper looks at Austria's pattern of development and its lessons for Eastern Europe. Austria's development path is characterized by three features. In the post-war era Austria was among the countries with the fastest convergence rate. At the same time Austria's movement up the technological ladder was slow compared with other European countries and came about with a small relative share of R&D in GDP. The paper uses insights from recent dynamic theories of trade to explain these three stylized facts. It is argued that resource endowments, international knowledge spillovers, learning, and government policy have contributed to Austria's post-war growth and the evolution of its pattern of trade over time. The paper looks at two lessons for Eastern Europe. First, Austria as a possible economic case for a gradual approach to economic reform. Second, in the light of the Austrian experience, industrial and trade policy for economies in transition is discussed.