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publication September 5, 2018

Critical Connections: Promoting Economic Growth and Resilience in Europe and Central Asia

Critical Connections: Promoting Economic Growth and Resilience in Europe and Central Asia

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The Europe and Central Asia (ECA) region has a rich history of regional integration and connectivity to the broader world economy, which has been essential to its long-term economic growth and prosperity.

Facilitated by trade, foreign direct investment, migration, telecommunications, transportation, and other avenues, this connectivity has enabled the region to benefit from the development and transfer of knowledge and technical innovation.

The European side of the region is an ideal laboratory for observing the role of multidimensional connectivity in action. Regional supply chains are strong, and links between countries across the various forms of connectivity allow observations on how connectivity opens doors for the knowledge transfers that support resilient growth.

In many European countries, however, progress on deepening connectivity has stalled since the global crisis and productivity growth attributed to connectivity has suffered.

In Central Asia, despite recent moves toward building greater interconnectedness, the region remains among the least connected globally. Because of both its geographical position and limited infrastructure, many of these countries are only weakly connected to other ECA countries and the global economy.

Although the vast distances between Central Asia, Europe, and East Asia remain an obstacle to connectivity, infrastructure investments and policies to improve integration through free trade, infrastructure, and investment could provide large growth benefits in Central Asia.

While connections are important for prosperity, however, they can also have adverse impacts. Despite the overall benefits, increased connectivity exposes countries in the ECA region to shocks, particularly those emanating from countries at the center of international economic transactions.

By providing alternative sources of external demand and financing, however, a broad range of connections can reduce those risks and help countries cope with both domestic and external shocks.

Critical Connections: Promoting Economic Growth and Resilience in Europe and Central Asia provides an insight into understanding - at the firm and country level - the interdependence of the ECA region and how it has historically, and presently, operated to advance economic growth and prosperity.

By recognizing the challenges, as well as making explicit the potential opportunities of greater connectivity through various channels, this report can assist the region’s policy makers in building the foundations for deepening important connections in the coming decades.