Critical Connections Promoting Economic Growth and Resilience in Europe and Central Asia 1st Edition David Michael Gould

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Critical Connections : Promoting Economic Growth and Resilience in Europe and Central Asia, World Bank Publications, 2018. ProQuest Ebook Central,
Critical Connections
Critical Connections
Promoting Economic
Growth and Resilience in
Europe and Central Asia
David Michael Gould
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Contents
About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xxiii
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxv
Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxvii
Regional Classifications Used in This Report . . . . . . . . . . . . . . . . . . . . . . . . . .xxxi
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Main Findings of Critical Connections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Multidimensional Connectivity Is a Key to Europe and Central Asia’s
Development and Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Europe and Central Asia Connectivity Is a Critical Source of
Knowledge Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Foreign-Owned and -Managed Firms Tend to Perform Better
and Contribute to Local Firms’ Productivity . . . . . . . . . . . . . . . . . . . . . . .15
Economic Migration Has Been Beneficial to Europe and Central Asia . . . .22
Strong Infrastructure Transport Links Provide Important Support for
Connectivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
The Growth of Supply Chains Reflects Greater Connectivity
and Has Facilitated Increased International Knowledge Flows . . . . . . . .31
European and Central Asian Countries Have Moved toward
More Open Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Considerable Scope Remains for Improving Policies to Increase
Connectivity in Europe and Central Asia . . . . . . . . . . . . . . . . . . . . . . . . .38
Annex OA. Selected Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
1 Multidimensional Connectivity: Pathways to Growth

and Shared Prosperity in Europe and Central Asia. . . . . . . .47
Main Messages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Trends in Economic Connectivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Connectivity and Income Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
Trade-Offs and Resilience to Shocks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
v
vi ● Critical Connections: Promoting Economic Growth and Resilience in Europe and Central Asia
Annex 1A. Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77

Annex 1B. Network Graph Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . .77
Annex 1C. Multiplex PageRank Centrality . . . . . . . . . . . . . . . . . . . . . . . . . .78
Annex 1D. Centrality Indicator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
Spotlight 1: Trends in Foreign Direct Investment in

Europe and Central Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86
Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86
2 Knowledge Transfers from International Openness

in Trade and Investment: The European Case . . . . . . . . . . . . .87
Main Messages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87
Knowledge Creation in Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88
Knowledge and Learning from Trade, Investment, and GVCs:
Insights from the Economic Literature . . . . . . . . . . . . . . . . . . . . . . . . . . .92
Knowledge Diffusion in Europe: The Two-Stage Process of
Technology Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
Spotlight 2: Attracting Foreign Direct Investment: The

Role of Deep Preferential Trade Agreements . . . . . . . . . . . . . .111
Deep PTAs in ECA: A Snapshot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111
Linking Deep Agreements with FDI: Empirical Strategy. . . . . . . . . . . . . . .114
Linking Deep Agreements with FDI: Results. . . . . . . . . . . . . . . . . . . . . . . .114
Annex S2A. Definition of Country Groups and Methodology . . . . . . . . . .117
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .124
3 Connectivity and Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125

Main Messages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125

Firm Connectivity in ECA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .126
Annex 3A. Coverage of Orbis Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .147
Annex 3B. Additional Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .148
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .152
Spotlight 3: Reaping Digital Dividends through

Complementary Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .155
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .159
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .159
Contents ● vii
4 Migration and Connectivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .161

Main Messages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .161
Migration Patterns in Europe and Central Asia . . . . . . . . . . . . . . . . . . . . .162
Migration Patterns in ECA Are Likely to Change . . . . . . . . . . . . . . . . . . . .171
Policies Should Aim to Improve the Integration of Migrants . . . . . . . . . . .176
Emigration Generates Net Benefits in ECA Origin Countries . . . . . . . . . .180
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .187
Annex 4A. Gravity Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .187
Annex 4B. Additional Tables and Figures . . . . . . . . . . . . . . . . . . . . . . . . . .189
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .194
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .195
5 Infrastructure Linkages: Cost, Time, and Networks . . . . . .199

Main Messages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .200
Connecting Cities and Neighbors: A Vicinity View of Transport
Services in ECA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .200
From First Neighbors to Transport Networks: Connectivity as
a Policy Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .205
Connectivity as a Collective Challenge: Centrality and Criticality . . . . . . .216
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .224
Annex 5A. Methodology and Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .226
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .234
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .236
6 Supply Chains in Europe and Central Asia: Connectivity

through Cross-Border Production Fragmentation . . . . . . . .237
Main Messages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .237
Factory Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .238
Are There Only Benefits from Increased Interdependence of
Countries? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249
Different Policies for GVC Upgrading . . . . . . . . . . . . . . . . . . . . . . . . . . . . .256
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .261
Annex 6A. Elasticities of Value Added in Exports, Gross Exports, and
Fragmentation Intensity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .261
Annex 6B. Interdependence of Countries . . . . . . . . . . . . . . . . . . . . . . . . .263

Annex 6C. Regression of Backward- and Forward-Participation
Indexes over a Set of Policy Variables . . . . . . . . . . . . . . . . . . . . . . . . . .263
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .264
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .265
7 ECA Policies for Improving Connectivity. . . . . . . . . . . . . . . . .269

Main Messages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .269
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .270
MFN Tariffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .277
Foreign Direct Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .279
viii ● Critical Connections: Promoting Economic Growth and Resilience in Europe and Central Asia
Preferential Trade Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .284

Bilateral Investment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .288
Product Market Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .292
EBRD Transition Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .299
Policy Comovements—Are Policies Consistent? . . . . . . . . . . . . . . . . . . . .301
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .307
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .307
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .308
Boxes
O.1 Global Value Chain Spillovers in Romania . . . . . . . . . . . . . . . . . . . .12
O.2 Marius Stefan of Autonom Romania: Knowledge transfers
through travel and studies abroad . . . . . . . . . . . . . . . . . . . . . . . . .25
1.1 A Better Way of Measuring Network Connectivity . . . . . . . . . . . . .66
1.2 Example of Using Connectivity Measures for Investment
Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
S2A.1 Methodology for the Estimation of the Impact of Deep
Integration on FDI Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .118
4.1 The Globalization of Education . . . . . . . . . . . . . . . . . . . . . . . . . . .173
4.2 Nicolas Catena Zapata and the Malbec: Technology Transfer
through Migration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .181
4.3 Emigration Can Improve Political Institutions in the Home
Country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .183
5.1 Measuring Market Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .212
5.2 Linkages and Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .216
5.3 Centrality and Criticality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .217
6.1 Global Value Chain Spillovers in Romania . . . . . . . . . . . . . . . . . . . .250
Figures
O.1 Exports of manufactured goods . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
O.2 Framework and logical flow of chapters for this report . . . . . . . . . . .6
O.3 Multidimensional connectivity combines many channels
of connectivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
O.4 Europe and Central Asia’s connectivity has grown, but there
are wide variations across subregions . . . . . . . . . . . . . . . . . . . . . . .9
O.5 Connectivity’s effects on overall and bottom-40 growth . . . . . . . . .10
O.6 A shock originating in Germany has the largest impact on
countries that gain their global connectivity through Germany . . .11
O.7 Europe lags behind the frontier in services . . . . . . . . . . . . . . . . . .13
O.8 How technology flows from European frontier firms
(global value chain lead firms) to the remaining European firms . .14
O.9 Productivity growth was lower in Central and Eastern Europe
during the crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
O.10 Foreign-owned and foreign-managed firms in ECA, 2013 . . . . . . .16
Contents ● ix
O.11 Large firms are more likely to be foreign owned in ECA . . . . . . . . .17
O.12 There is no clear relationship between a firm’s age and the
likelihood of its being foreign owned . . . . . . . . . . . . . . . . . . . . . . .17
O.13 Foreign-owned and -managed firms perform better than
local firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
O.14 Foreign affiliates tend to have better management practices
than local firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
O.15 The positive spillovers of well-managed foreign firms seem
weaker for small and young firms . . . . . . . . . . . . . . . . . . . . . . . . . .21
O.16 Foreign firms’ employment decisions are less procyclical
than those of their domestic peers . . . . . . . . . . . . . . . . . . . . . . . . .22
O.17 ECA migration is driven by geography, language, historical
ties, and past migration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
O.18 Transport connectivity (cost and time) between and
within ECA countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
O.19 Cost-driven criticality in container network for Europe and
Central Asia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
O.20 Participation in global value chains is correlated with higher
labor productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
O.21 Among the transition countries, greater production
fragmentation is associated with a more rapid increase in
the flows of value added in exports . . . . . . . . . . . . . . . . . . . . . . . .34
O.22 ECA ranks among the top regions in regard to the number
of trade agreements and investment treaties . . . . . . . . . . . . . . . . .36
1.1 Trends in intraregional trade in ECA . . . . . . . . . . . . . . . . . . . . . . . .52
1.2 Exports of manufactured goods . . . . . . . . . . . . . . . . . . . . . . . . . . .54
1.3 Foreign direct investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
1.4 Migration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
1.5 Airline connectivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
1.6 Internet and communication technologies . . . . . . . . . . . . . . . . . . .58
1.7 Portfolio financial flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
B1.1.1 Examples of network connectivity and the modified PageRank . . .66
1.8 Multidimensional connectivity network . . . . . . . . . . . . . . . . . . . . . .67
1.9 Multidimensional network connectivity . . . . . . . . . . . . . . . . . . . . . .68
1.10 Europe and Central Asia’s connectivity has grown,
but there are wide variations across subregions . . . . . . . . . . . . . . .69

B1.2.1 Kazakhstan’s connectivity ranking change . . . . . . . . . . . . . . . . . . . .71
1.11 Simulated impact on individual countries’ connectivity measure
(modified PageRank) of a 10 percent decline in trade, foreign
direct investment, and migration in Germany, the Russian
Federation, and the United States . . . . . . . . . . . . . . . . . . . . . . . . .74
S1.1 The relevance of ECA as both a destination and an origin of
FDI has fallen since 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
S1.2 World FDI inflows into ECA are relatively more diversified by
ECA destination than ECA FDI outflows to the world . . . . . . . . . . .83
S1.3 ECA’s share of world FDI inflows is greater than its share
of world GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
x ● Critical Connections: Promoting Economic Growth and Resilience in Europe and Central Asia
S1.4 FDI attraction patterns increase with development levels but

vary by country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
S1.5 Services and manufacturing dominate FDI inflow patterns
across ECA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
S1.6 Germany and the United States dominate EU investment;
France and China lead elsewhere . . . . . . . . . . . . . . . . . . . . . . . . .86
2.1 Differences between frontier and laggard firms vary
across sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90
2.2 Europe lags behind the frontier in services . . . . . . . . . . . . . . . . . .91
2.3 Technology transfer tends to follow a typical sequence . . . . . . . . .98
2.4 How technology flows from European frontier firms (global
value chain lead firms) to the remaining European firms . . . . . . .100
2.5 Firms’ international connectivity and technology transfer
follow three stages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
2.6 GVC participation is particularly high in Central and
Eastern Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
2.7 Import intensity varies over time for Central and Eastern
European EU countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
2.8 Productivity growth was lower in Central and Eastern
Europe during the crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
S2.1 The European Union shows the greatest depth of agreements
among ECA country groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112
S2.2 Sectoral and customs-related provisions are the most
frequent WTO provisions in ECA PTAs . . . . . . . . . . . . . . . . . . . . .113
S2.3 Among WTO+ provisions, Competition Policy, Movement
of Capital, and Intellectual Property Rights are the most
frequent WTO+ provisions included in ECA PTAs . . . . . . . . . . . .114
S2.4 The impact of deep agreements on FDI . . . . . . . . . . . . . . . . . . . .115
S2.5 Deep agreements are more helpful in facilitating FDI in
culturally distant destinations for manufacturing, while the
opposite is true for services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116
3.1 The presence of foreign firms varies substantially across
ECA countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127
3.2 Large firms are more likely to be foreign owned in ECA . . . . . . . .128
3.3 There is no clear relationship between a firm’s age and the
likelihood of its being foreign owned . . . . . . . . . . . . . . . . . . . . . .129

3.4 Foreign affiliates owned by tax haven countries are small
and medium sized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132
3.5 The Average Management Index is strongly correlated
with the WMS Management Index . . . . . . . . . . . . . . . . . . . . . . . .136
3.6 Foreign affiliates tend to have better management practices
than local firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .137
3.7 More foreign affiliates are owned by countries with better
management indexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .137
3.8 Foreign firms’ employment decisions are less procyclical
than those of their domestic peers . . . . . . . . . . . . . . . . . . . . . . . .139
3.9 Foreign-owned and -managed firms perform better than
local firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .140
Contents ● xi
3.10 The positive spillovers of well-managed foreign firms seem

weaker for small and young firms . . . . . . . . . . . . . . . . . . . . . . . . .145
S3.1 Firms’ online sales rise with more efficient logistics and
payment systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .156
S3.2 Internet use by firms is associated with the intensity
of local competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .157
4.1 Top destinations of emigrants and share of total who have
completed tertiary education, 2010 . . . . . . . . . . . . . . . . . . . . . . .165
4.2 Age composition of native-born and immigrant
populations, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .168
4.3 Percentage of women among emigrants, 2010 . . . . . . . . . . . . . . .169
4.4 The share of high-skilled immigrants to high-income
ECA OECD member countries increased between 2000
and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .172
4.5 The share of temporary employment increased in Europe
and Central Asia between 2002 and 2016 . . . . . . . . . . . . . . . . . .172
4.6 The share of temporary migration is positively related to
the share of temporary employment . . . . . . . . . . . . . . . . . . . . . . .173
B4.1.1 Most top ECA destinations attracted more international
tertiary students in 2014 than in 2004 . . . . . . . . . . . . . . . . . . . . . .174
B4.1.2 Most source countries of international tertiary students are in ECA . . .174
B4.1.3 ECA hosted half of the world’s tertiary students in 2014 . . . . . . .175
B4.1.4 Top 10 corridors of international tertiary students with
ECA hosts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .175
4.7 Unemployment rates are higher for foreign-born than for
native-born workers in most countries in Europe and
Central Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .177
4.8 Tertiary education rates in the European Union are about
the same among native- and foreign-born working-age
populations (ages 25–54) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .177
4.9 Migrant Integration Policy Index overall, labor market
integration, and political participation scores in ECA and
selected countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .178
4.10 Many countries in Europe and Central Asia depend on
remittances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .180
4.11 High-income ECA countries are much more permissive toward

international mobility than the United States . . . . . . . . . . . . . . . .186
4B.1 Share of tertiary educated among emigrants from
EU15+ countries, 2000 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . .193
4B.2 Share of tertiary educated among emigrants from Central
and Eastern European countries, 2000 and 2010 . . . . . . . . . . . . .193
4B.3 Share of tertiary educated among emigrants in Central Asia
and the South Caucasus, 2000 and 2010 . . . . . . . . . . . . . . . . . . .194
5.1 Domestic connectivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .202
5.2 Neighbor connectivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .204
5.3 Nonlinear impact of connecting with neighbors of neighbors . . .206
5.4 Cost-based connectivity of the ECA road transport
network, by region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .207
xii ● Critical Connections: Promoting Economic Growth and Resilience in Europe and Central Asia
5.5 Cost and time connectivity in the ECA network . . . . . . . . . . . . . .209

5.6 Container cost connectivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .211
5.7 Realized potential of connectivity to ECA markets relative to
advanced Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .213
5.8 Realized potential of connectivity to markets by country, 2016 . . . . 214
5.9 Linkages and overall integration . . . . . . . . . . . . . . . . . . . . . . . . .216
5.10 Centrality in the ECA network for container transport . . . . . . . . . .218
5.11 Cost-driven criticality in the ECA network for container transport. . . .219
5.12 Romania: Impact of a 30 percent decrease in container
transport costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .222
5.13 Kazakhstan: Costs and potential indexes before and after
decrease in costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .223
5A.1 Cost of and time required for freight transport services . . . . . . . .231
6.1 Three clusters of countries emerge: “Factory Europe” around
Germany, “Factory North America” around the United States,
and “Factory Asia” around China . . . . . . . . . . . . . . . . . . . . . . . . .239
6.2 Smaller European countries, like the Czech Republic, are
dominated by trade with Germany, while Germany is the
headquarters of “Factory Europe,” which trades
more globally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
6.3 Higher production fragmentation due to supply chains is
associated with more rapid growth in value added in
exports over 2000–11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .242
6.4 Among the transition EU13 countries, greater production
fragmentation is associated with a more rapid increase
in the flows of value added in exports . . . . . . . . . . . . . . . . . . . . .243
6.5 EU countries buy more foreign value added
(backward linkages) than they sell to third countries
(forward linkages) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .244
6.6 Participation in supply chains is heterogeneous among
ECA countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .245
6.7 Supply chain trade with close partners remains high . . . . . . . . . .246
6.8 European FDI inflows into the EU13 countries increased
dramatically after the 2003 entry of those countries into
the European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .249
6.9 Participation in global value chains is correlated with

higher labor productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .251
6.10 Participation in global value chains is correlated with higher
domestic value added at the sector level . . . . . . . . . . . . . . . . . . .252
6.11 Sectors from advanced EU15, transition EU13, and non-EU
countries are interdependent, but the most central
sectors are from EU15 countries . . . . . . . . . . . . . . . . . . . . . . . . . .253
6.12 Sectors that are more integrated in a production trade network
move more together . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .255
6.13 Imports of intermediate goods are more volatile than imports
of final goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .256
6.14 Many EU13 countries have high backward participation
but low forward participation . . . . . . . . . . . . . . . . . . . . . . . . . . . .257
Contents ● xiii
6.15 ECA Non-EU countries mainly import final goods and

export little . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .258
6.16 Heterogeneous participation in trade of domestic and
foreign firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .259
6.17 Many ECA countries can still reduce trade barriers and
improve logistics and the business environment to increase
their supply chain participation . . . . . . . . . . . . . . . . . . . . . . . . . . .260
6A.1 Elasticities of exports of value added and gross exports,
and of the ratio of gross exports to value added, for the
EU13, EU15, and all countries . . . . . . . . . . . . . . . . . . . . . . . . . . . .261
7.1 Tariffs across global regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .278
7.2 Tariffs in the main ECA subregions . . . . . . . . . . . . . . . . . . . . . . . .278
7.3 Tariffs in ECA regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .279
7.4 Tariffs in ECA countries by income group . . . . . . . . . . . . . . . . . . .279
7.5 FDIRRI in ECA and selected countries . . . . . . . . . . . . . . . . . . . . . .280
7.6 FDIRRI in ECA subregion I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .281
7.7 FDIRRI in ECA subregion II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .281
7.8 FDIRRI in ECA countries by income group . . . . . . . . . . . . . . . . . .282
7.9 FDIRRI for communications and transport in ECA and
selected countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .282
7.10 FDIRRI for communications and transport in ECA subregions . . . .283
7.11 FDIRRI for transport in ECA countries by income group . . . . . . . .283
7.12 FDIRRI for communications in ECA countries by income group . . . .284
7.13 Preferential trade agreements across global regions. . . . . . . . . . .285
7.14 Preferential trade agreements across global regions:
Intraregional integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .286
7.15 Preferential trade agreements across global regions:
Extraregional integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .286
7.16 Preferential trade agreements in ECA subregions . . . . . . . . . . . . .287
7.17 Preferential trade agreements in ECA countries by
income group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287
7.18 Preferential trade agreements in ECA subregions: Intra- versus
extraregional integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .288
7.19 Preferential trade agreements in ECA countries by
income group: Intra- versus extraregional integration . . . . . . . . . .288
7.20 Bilateral investment treaties across global regions . . . . . . . . . . . .289

7.21 Bilateral investment treaties across global regions:
Intraregional integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .290
7.22 Bilateral investment treaties across global regions:
Extraregional integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .290
7.23 Bilateral investment treaties in ECA subregions . . . . . . . . . . . . . .291
7.24 Bilateral investment treaties in ECA countries by income group. . . .291
7.25 Bilateral investment treaties in ECA subregions: Intra- versus
extraregional integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .292
7.26 Bilateral trade agreements in ECA countries by income
group: Intra- versus extraregional integration . . . . . . . . . . . . . . . .292
7.27 Horizontal product market regulation in ECA
and selected countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .294
xiv ● Critical Connections: Promoting Economic Growth and Resilience in Europe and Central Asia
7.28 Horizontal product market regulation in ECA subregions . . . . . . .294

7.29 Horizontal product market regulation in ECA countries
by income group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .295
7.30 Product market regulation: Aggregate energy, transport, and
communications regulations in ECA and selected countries . . . . .295
7.31 Product market regulation: Aggregate energy, transport, and
communications regulations in ECA subregions . . . . . . . . . . . . . .296
7.32 Product market regulation: Regulations regarding airlines
in ECA subregions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .296
7.33 Product market regulation: Regulations involving railways
7.34 Product market regulation: Regulations regarding
telecommunications in ECA subregions . . . . . . . . . . . . . . . . . . . .297
7.35 Product market regulation: Aggregate energy, transport,
and communications regulations in ECA countries by
income group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298
7.36 Technical barriers to trade and sanitary and phytosanitary
notifications in ECA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .299
7.37 Technical barriers to trade and sanitary and phytosanitary
notifications in ECA across income regions . . . . . . . . . . . . . . . . . .299
7.38 Aggregate EBRD Transition Indicators for infrastructure
7.39 Aggregate EBRD Transition Indicators for infrastructure
in ECA countries by income group . . . . . . . . . . . . . . . . . . . . . . . .301
7.40 Global evolution of selected policy comovements . . . . . . . . . . . .303
7.41 Evolution of selected policy comovements across income groups . . . . 304
7.42 Tariff–Mobility Barriers Index comovements across countries
imposing mobility restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . .305
7.43 Tariff–bilateral investment treaty comovements across
ECA subregions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .305
global regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .306
ECA macrosubregions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .306
Maps
O.1 Emigration and immigration shares have seen the highest
increase in Europe and Central Asia . . . . . . . . . . . . . . . . . . . . . . . .24
S2.1 The European Union and North America show the deepest
forms of integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112
4.1 Emigration shares have seen the highest increase in ECA. . . . . . .163
4.2 Immigration shares are significant in many ECA countries . . . . . .164
5A.1 Typologies used in the analysis . . . . . . . . . . . . . . . . . . . . . . . . . .228
6.1 Which countries are the most central in the ECA production
network? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .255
Contents ● xv
Tables
O.1 Multidimensional Connectivity Varies by ECA Subregion,
with the Highest Connectivity in the Western Part of the
Region and the Lowest in the Eastern Part . . . . . . . . . . . . . . . . . . . .8
O.2 EU and Non-EU Countries Most Affected by Brexit. . . . . . . . . . . . .11
O.3 Most Foreign Firms in ECA Are Owned by German and US Firms . . .18
OA.1 Multidimensional Connectivity Indexes (on an Absolute Basis) . . . .42
OA.2 Multidimensional Connectivity Indexes (on a Per Capita Basis) . . . .44
1.1 Connectivity Effects on Overall Income Growth . . . . . . . . . . . . . . .63
1.2 Connectivity Effects on Bottom-40 Income Growth . . . . . . . . . . . .64
1.3 Correlation between Connectivity Layers Is High, Except in
the Case of Portfolio Financial Flows . . . . . . . . . . . . . . . . . . . . . . .65
1.4 Multidimensional Connectivity . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
1.5 Multidimensional Connectivity Varies by ECA Subregion,
with the Highest Connectivity in the Western Part of the
Region and the Lowest in the Eastern Part . . . . . . . . . . . . . . . . . . .69
B1.2.1 Potential Markets and Their Connectivity Indexes. . . . . . . . . . . . . .70
B1.2.2 Kazakhstan’s New Multidimensional Connectivity Index after
Investing $100 Million Each in Various Markets . . . . . . . . . . . . . . . .70
1.6 ECA Countries Most and Least Affected by Brexit . . . . . . . . . . . . .76
1.7 Transmission of Trade, Migration, and FDI Shocks to ECA
Subregions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
1A.1 Long-Term Growth Determinants . . . . . . . . . . . . . . . . . . . . . . . . . .77
1A.2 Network Country Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
S1.1 ECA Is the Main Investor in ECA . . . . . . . . . . . . . . . . . . . . . . . . . . .85
2.1 Europe Specializes in Several Sectors with Below-Average
R&D Intensity and Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91
S2A.1 Country Groups and Subgroups . . . . . . . . . . . . . . . . . . . . . . . . . .117
S2A.2 Percentage of ECA PTAs Including WTO Provisions,
by Subgroup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
S2A.3 WTO and WTO+ Policy Areas in PTAs . . . . . . . . . . . . . . . . . . . . .119
S2A.4 Percentage of ECA PTAs Including WTO+ Provisions,
by Subgroup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119
S2A.5 Countries and Economies Included in the Estimations . . . . . . . . .120
S2A.6 Regression Results: Deep Agreements and Foreign

Direct Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121
S2A.7 Foreign Direct Investment and Depth: Interactions with ECA . . . .121
S2A.8 Foreign Direct Investment and Depth, by Group of Provisions . . . . 122
S2A.9 Foreign Direct Investment and Depth, by Technology
Level (OECD Rev. 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122
S2A.10 Foreign Direct Investment, Depth, and Distance. . . . . . . . . . . . . .122
S2A.11 Foreign Direct Investment and Depth: Triple Interactions . . . . . . .123
3.1 Most Foreign-Owned Firms in ECA Are Owned by Germany
and the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .130
3.2 Determinants of Foreign Ownership and Management . . . . . . . .131
3.3 Better-Managed Foreign Affiliates Perform Better . . . . . . . . . . . .141
xvi ● Critical Connections: Promoting Economic Growth and Resilience in Europe and Central Asia
3.4 Foreign Firms Locate in Regions and Sectors with Larger

Local Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .142
3.5 Domestic Firms in ECA Grow Faster in Regions with
Well-Managed Foreign Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . .143
3B.1 Foreign-Owned and Foreign-Managed Firms Perform
Better Than Local Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .148
3B.2 Firms with Better Foreign Managers Perform Better . . . . . . . . . . .148
3B.3 Spillover Effects of Foreign-Owned Firms on Domestic Firms . . . .149
3B.4 Firm Growth over the Business Cycle . . . . . . . . . . . . . . . . . . . . . .150
4.1 The Availability of Programs Designed to Integrate
Migrants Varied in ECA, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .179
4.2 Nearly All EU13 Countries Have Developed Policies to
Encourage the Return of Their Citizens . . . . . . . . . . . . . . . . . . . . .182
B4.3.1 Impact of Emigration on Institutions of Origin Countries,
by Type of Destination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .184
4B.1 Gravity Regression Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .189
4B.2 Emigration in ECA Countries (excluding EU15+), 2000 . . . . . . . . .190
4B.3 Emigration in ECA Countries (excluding EU15+), 2010 . . . . . . . .191
4B.4 Immigration in ECA Countries (excluding EU15+), 2000 . . . . . . . .191
4B.5 Immigration in ECA Countries (excluding EU15+), 2010 . . . . . . . .192
4B.6 Economies Included in Figure B4.1.3 . . . . . . . . . . . . . . . . . . . . . .193
5.1 Changes in Centrality Due to a Decrease in Container
Transport Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .221
5.2 Segments Affected by 33 Percent Cost Reduction in
Container Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .223
6.1 The Importance of Imported Value Added in Exports
(Backward Linkages) and Exported Value Added in Third
Countries’ Exports (Forward Linkages) Differs by Region . . . . . . .244
6.2 What Sectors or Countries Are Expected to Have the Largest
Impact on the Rest of the ECA Economies When They Face
Either a Positive or a Negative Shock? . . . . . . . . . . . . . . . . . . . . .254
6B.1 Sectors That Are More Integrated in the Production Network
Are More Correlated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .263
6C.1 Variables for Global Value Chain Participation and
Forward Linkages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .264
7.1 Policy Measures and Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . .276

7.2 Comovements of Connectivity Policies . . . . . . . . . . . . . . . . . . . . .302
About the Authors
David M. Gould (World Bank) is currently Lead Economist in the World Bank’s
Europe and Central Asia Region and the lead author of the ECA Critical Connections
flagship. He is the author of several books and peer-reviewed journal articles on
international trade and finance, migration, and economic policy. Currently, he is
leading Europe and Central Asia regional studies on the development impact of
disruptive technologies. During his 15 years at the World Bank, he has led teams
to deliver country development strategies and analytical and lending operations
in Europe, Latin America, and South Asia. Prior to joining the World Bank, he
served as the Director of Global Economic Analysis at the Institute of International
Finance and as Senior Economist and Policy Advisor at the US Federal Reserve.
He has held visiting research positions at the Central Banks of Mexico and Chile.
He holds a PhD in International Economics (with honors) from the University of
California at Los Angeles and is a Chartered Financial Analyst charter holder.
Megersa Abate (World Bank) is a Transport Economist in the World Bank’s

Transport and Digital Development Global Practice. He has extensive expertise
and interest in various topics, including freight demand modeling, air transport
regulation, and transport connectivity. His research has been published in leading
transportation economics journals. Before joining the Bank in 2016, he worked as
a researcher at VTI, the Swedish National Road and Transport Research Institute,
and at the VU University of Amsterdam. Earlier in his career, he worked at the
Ethiopian Civil Aviation Authority as an air transport expert. He received his PhD
in Transport Economics from the Technical University of Denmark in 2013; during
his PhD studies, he was also a visiting student in the Institute of Transport Studies
at the University of Leeds.
Erhan Artuc (World Bank) is a Senior Economist in the World Bank’s Development
Research Group. Prior to joining the World Bank in 2011, he was a faculty member
at Koç University in Istanbul, Turkey. His most recent research focuses on interna-
tional trade and migration policies and their effects on labor markets and
development. His work has been published in leading academic and policy
journals such as the Journal of International Economics, Economic Journal, and
American Economic Review. He received his undergraduate degree from Bilkent
University and a PhD in Economics from the University of Virginia.
Omar Bamieh (University of Vienna) is an Assistant Professor of Economics at

the University of Vienna. His research focuses on labor market institutions and the xvii
xviii ● Critical Connections: Promoting Economic Growth and Resilience in Europe and Central Asia
interaction between legal frameworks and labor markets. He holds an MS in

Economics and Social Sciences from Bocconi University in Milan and a PhD in
Economics from the European University Institute in Florence, where he also
worked as a Research Fellow in Global Economics at the Robert Schuman Centre
for Advanced Studies.
Cecilia Briceno-Garmendia (World Bank) is a Lead Economist in the World

Bank’s Transport and ICT Global Practice, where she leads the economic research
agenda in logistics and transport in the Latin America region and globally advises
teams and governments in strategic issues pertaining to prioritization and plan-
ning of infrastructure investments, including aspects related to spending effi-
ciency, green trucking and trucking sector performance, multimodal development
corridors, and adaptation of transport networks to climate change. Previously, she
led the economic team in the Office of the Director for Sustainable Development
of the Latin America region, where she provided leadership for the analytical
agenda on infrastructure, urban, and disaster risk management and climate
change adaptation issues. She has worked extensively on issues pertaining to
connectivity, logistics, and port performance and co-led the pathbreaking Africa
Infrastructure Country Diagnostic. She has worked on projects and research in
more than 70 countries. Before joining the World Bank, she worked in software
engineering and the design of information and organizational systems for both
private and public sector enterprises in República Bolivariana de Venezuela. She
has an MBA from the Instituto de Estudios Superiores en Administración in
Caracas, República Bolivariana de Venezuela, and a doctorate in Economics from
Georgetown University.
Matteo Fiorini (European University Institute) is a Research Fellow in Global

Economics at the Robert Schuman Centre for Advanced Studies of the European
University Institute in Florence, Italy. His research focuses on international trade,
trade policy, migration, and development. Prior to joining the Schuman Centre, he
worked as a researcher at the Institute’s Migration Policy Centre, the World Trade
Organization, and Bocconi University. He holds an MS in Economics and Social
Sciences from Bocconi University in Milan and a PhD in Economics from the
European University Institute in Florence.
Bernard Hoekman (European University Institute) is a Professor at the Robert

Schuman Centre for Advanced Studies of the European University Institute. He is
also a Research Fellow at the Centre for Economic Policy Research, a member of the
World Economic Forum Council on Trade and Investment, and a Senior Fellow at
the Centre for International Governance Innovation. His research focuses on trade
and development, economic integration, and the multilateral trading system.
Dror Y. Kenett (World Bank) is a multidisciplinary financial economist and an

expert on financial networks, financial stability, and systemic risk. He is a consultant
to the World Bank, Adjunct Professor at Johns Hopkins University, a research asso-
ciate at the London School of Economics Systemic Risk Centre, and a visiting
researcher at Boston University and at the Israel Securities Authority. He has also
About the Authors ● xix
held a researcher position in the US Department of the Treasury’s Office of Financial

Research. He applies his scientific background to financial stability questions,
focusing on network-based models, market structure, financial contagion and spill-
overs, and correlation-based models. He has extensive policy experience and has
contributed to the Office of Financial Research Financial Stability Report and par-
ticipated in the development of the Office’s monitoring tools. He has published
more than 40 papers in financial, physics, and engineering journals, including the
Journal of Banking and Finance, Journal of Risk and Financial Management,
Quantitative Finance, Nature Physics, and Scientific Reports. He has a PhD in
Physics from Tel Aviv University in Israel.
Mathilde Lebrand (World Bank) is an Economist in the World Bank’s Transport

Global Practice. Currently she is working on the Belt and Road Initiative, eco-
nomic corridor development, and connectivity. Previously she worked for the
Europe and Central Asia Chief Economist office and contributed to several
upcoming regional studies. Her research focuses on economic geography,
international trade and global value chains, networks, and political economy.
She has taught at the University of Montreal and has worked at the World Trade
Organization in Geneva. She is a Research Fellow at the Center for Economic
Studies ifo Institute (CESifo). She holds a PhD in economics from the European
University Institute.
Paloma López-Garcia (European Central Bank) has been a Senior Economist in

the Directorate-General—Economics at the European Central Bank since 2015.
Before that she was Coordinator of the Competitiveness Research Network
(CompNet) in the Directorate-General—Research, and she has also worked at the
Instituto de Empresa Business School and in the Research and Economics
Department of the Central Bank of Spain. She has published articles in the
European Economic Review, Small Business Economics, and Economics of
Innovation and New Technology, among other peer-reviewed journals. Her
research topics are microanalysis of productivity and employment growth, innova-
tion, and trade and competitiveness. She earned her PhD at the London School of
Economics in 2003.
Çağlar Özden (World Bank) is a Lead Economist in the World Bank’s Research
Department. His research explores the nexus of globalization of product and labor
markets, government policies, and economic development. His current research
projects explore the determinants and patterns of global labor mobility; impacts
of migrants on destination labor market outcomes; linkages between migration,
trade, and foreign direct investment flows; medical brain drain; and linkages
between aging and global economic integration. He has edited three books and
published numerous papers in leading academic journals such as the American
Economic Review and the Economic Journal. He is a Fellow of the Institute of
Labor Economics (IZA) and of the Centre for Research and Analysis of Migration
(CreAM) and serves on the advisory board of the Economic Research Forum. He
received his undergraduate degrees in Economics and Industrial Engineering from
Cornell University and his PhD in Economics from Stanford University.
xx ● Critical Connections: Promoting Economic Growth and Resilience in Europe and Central Asia
Georgi Panterov (World Bank) is a Research Analyst in the World Bank’s Office
of the Chief Economist for Europe and Central Asia. His research interests are
focused on machine learning, econometrics, blockchain, and cryptocurrencies.
During his time at the World Bank, he has contributed to the Golden Aging flag-
ship report, the Critical Connections flagship report, and the Europe and Central
Asia economic update reports. Before joining the World Bank, he worked at
Google, the US Department of Agriculture, and American University. He is cur-
rently a PhD candidate in Economics at American University in Washington, DC.
Nadia Rocha (World Bank) is a Senior Economist in the World Bank’s

Macroeconomics, Trade and Investment Global Practice. Prior to joining the Bank
in 2016, she worked for five years in the World Trade Organization’s Economic
Research and Statistics Division. She was seconded to the Colombian Ministry of
Trade to serve as a Senior Advisor on Trade during 2015. Her current work focuses
on regionalism, trade costs, global value chains, and trade and gender. She holds
a BA in economics from Bocconi University in Milan, an MA in Economics from
Pompeu Fabra University of Barcelona, and a PhD in International Economics from
the Graduate Institute, Geneva.
Daria Taglioni (World Bank) is the Principal Economist for the Europe and Central
Asia and East Asia and Pacific Regions in the Economics and Private Sector
Development Vice Presidency of the World Bank Group’s International Finance
Corporation. Prior to joining the World Bank Group, Daria worked at the European
Central Bank and at the Organisation for Economic Co-operation and Development.
Her research focuses on trade and competitiveness. She has published articles in
the American Economic Review and Journal of International Economics, among
other peer-reviewed journals. She holds a PhD in International Economics from the
Graduate Institute of Geneva.
Shawn Tan (World Bank) is an Economist in the World Bank’s Finance,

Competitiveness and Innovation Global Practice and is currently working on pri-
vate sector development and trade issues in the countries of Eastern Europe and
the Western Balkans. He has worked on reports such as the World Development
Report 2016: Digital Dividends, Reaping Digital Dividends: Leveraging the Internet
for Development in Europe and Central Asia, and the high-growth entreneurship
report and has written papers on international trade, firm productivity, and high-
growth firms. Before joining the World Bank, he worked at the Singapore Economic
Development Board, where he was a negotiator for Singapore’s free trade agree-
ments and bilateral investment treaties and worked on trade facilitation issues for
multinational companies in Singapore. His research interests are broadly in inter-
national trade, economic geography, and firm productivity and performance. He
holds a PhD in Economics from the University of Melbourne.
Gonzalo Varela (World Bank) is a Senior Economist in the Global Trade and
Regional Integration Unit of the World Bank’s Macroeconomics, Trade and
Investment Global Practice. Prior to joining the World Bank, he was a Lecturer at
the University of Sussex and at Uruguay’s Ministry of Industry, Energy, and Mining.
About the Authors ● xxi
His work agenda focuses on global integration and economic performance and on
the analysis of trade policy and competitiveness. He holds a BSc in Economics
from the Universidad de la República in Uruguay and both an MA in International
Economics and a PhD in Economics from the University of Sussex.
Hernan Winkler (World Bank) is a Senior Economist in the World Bank’s

Jobs Group. He specializes in applied microeconomics, with a particular focus on
issues related to labor markets, technological change, and the sources and conse-
quences of poverty and inequality. His research has been published in peer-
reviewed economics journals, including the Review of Economics and Statistics
and the Journal of Development Economics. He was a lead author of the World
Bank regional report Reaping Digital Dividends: Leveraging the Internet for
Development in Europe and Central Asia. He has been part of the core teams of
several regional reports, including Diversified Development, Golden Aging, and
Risk and Returns. He was previously a researcher at the Center for Distributive,
Labor and Social Studies (CEDLAS) at the National University of La Plata in
Argentina, where he conducted research on poverty and distributional issues
affecting countries in Latin America and the Caribbean. He holds a master’s degree
in Economics from the National University of La Plata and a PhD in Economics from
the University of California at Los Angeles.
Thea Yde-Jensen (World Bank) is a Researcher in the World Bank Group’s Poverty
and Equity Global Practice, where she conducts research on issues related to liveli-
hoods, labor market outcomes, and displacement. Her expertise and research
interests particularly focus on examining the interlinkages of labor markets and
inequality and poverty. Previously she worked as a Researcher in the Bank’s Office
of the Chief Economist for Europe and Central Asia, focusing on issues related to
employment and firms’ access to finance and international networks. Prior to join-
ing the World Bank, she worked in the International Monetary Fund’s Statistics
Department and in the Department of Economics at Copenhagen Business
School. She has a BS and an MS in Economics from the University of Copenhagen.
Foreword
In mid-2014 when Critical Connections was first contemplated, the Europe and
Central Asia (ECA) region was still emerging from the global financial crisis, growth
was uncertain and tepid, and policy makers were largely focused on mitigating
further financial and macroeconomic risks from ongoing weakness in the banking
sector and large fiscal deficits. Appropriately, the policy discourse was largely
targeted to shoring up near-term challenges, rather than to assembling the
building blocks that would provide the foundation for restoring the promise of
long-term resilient growth.
Critical Connections was born out of the desire to help policy makers focus
their attention on their long-term goals of regional and global integration to
capture the benefits of connectivity, from which ECA countries had advanced so
far during the early years of market expansion in the 1990s and early 2000s.
What started simply as an exploration into policies to capture the gains of
specialization and knowledge transfers has taken on much greater meaning in
recent times. The trend toward regional and global integration is under serious
threat as many voters, particularly in high-income countries, see nationalism and
protection as a remedy to greater economic uncertainty. But as former UK Prime
Minister Gordon Brown noted in a 2015 speech, “the problems that give rise to
nationalism can’t be solved by nationalism and in an interdependent world the
problems that give rise to isolationism and protectionism cannot be solved by
isolationism and protectionism.”
While Critical Connections does not provide answers to assuage all the
concerns about our changing global economy, it does provide an invaluable
insight into understanding—at the firm and country level—the interdependence
of our world and how it has historically operated, and currently operates, to
advance economic growth and shared prosperity.

A key insight of this report is that ECA’s international connectivity through trade,
foreign direct investment, migration, telecommunications, transportation, and
other avenues facilitates the transfers of knowledge and technology that are critical
to long-term growth and shared prosperity. These connections complement one
another because of the tacit (learning by doing), rather than explicit (contained in
books or blueprints), nature of knowledge transfers. Migration, for example,
enhances knowledge spillovers through trade and foreign investment by migrants
transferring information on foreign markets and supporting connections to them.
Similarly, the internet and efficient transport links are both necessary for successful
e-commerce.
xxiii
xxiv ● Critical Connections: Promoting Economic Growth and Resilience in Europe and Central Asia
Moreover, the depth of ECA’s connections and the geographic composition of

the connections both matter. Knowledge transfers are greater from countries that
themselves have strong links to third countries. These transfers also emerge from
linkages between firms in global value chains as well as foreign ownership and
management practices that generate local spillovers.
While these connections are important for prosperity, however, one should not
be naive about their impact. Despite its overall benefits, increased connectivity
exposes ECA countries to shocks, particularly those emanating from countries at
the center of international economic transactions, which may have contributed to
economic insecurity. However, by providing alternative sources of external demand
and financing, a broad range of connections can reduce those risks and help
countries cope with both domestic and external shocks.
The European side of the ECA 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. Nonetheless, in many European countries, progress on
deepening connectivity has stalled since the global financial 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 its limited infrastructure, many
Central Asian countries are only weakly connected to other ECA countries and the
global economy. The vast distances between Central Asia, Europe, and East Asia
will remain an obstacle to connectivity. However, infrastructure investments and
policies to improve integration through freer trade, infrastructure, and investment
policies are likely to provide large growth benefits in Central Asia.
Many ECA countries can be proud of what they have achieved in building
greater connectivity and advancing development during the past 25 years. But
because the economic benefits of connectivity through knowledge and technology
transfers are not obvious, while the challenge of economic uncertainty is, building
the case for deepening connections requires solid and clear evidence. By
recognizing the challenges as well as making explicit the potential opportunities
of greater connectivity through various channels, Critical Connections can assist
ECA’s policy makers in building the foundations for deepening important
connections in the coming decades.

Cyril Muller
Vice President
Europe and Central Asia Region
World Bank Group
Acknowledgments
This report was written by a team led by David Michael Gould, Lead Economist
in the World Bank’s Office of the Chief Economist for Europe and Central Asia.
The core team members were Erhan Artuc, Cecilia Briceno-Garmendia, Bernard
Hoekman (European University Institute), Mathilde Lebrand, Çağlar Özden,
Georgi Panterov, Nadia Rocha, William Shaw, Daria Taglioni, Shawn Tan, Ekaterina
Ushakova, Gonzalo Varela, Hernan Winkler, and Thea Yde-Jensen. The work was
carried out under the overall supervision and guidance of Hans Timmer, Chief
Economist for the Europe and Central Asia Region.
The Macroeconomics, Trade, and Investment team benefited from the guid-
ance of Jose Guilherme Reis and comments and discussions with Jean Francois
Arvis, Cordula Rastogi, and Daniel Saslavsky. The Transport team appreciates the
general guidance of Juan Gaviria and comments and discussions with Baher
El-Hifnawi, Carolina Monsalve, and the Global Practice Transport team at large.
Many thanks go to Rashmi Shankar for her extremely helpful contributions during
the early stages of the report and Moritz Meyer for his generous time and discus-
sions on applied network analysis. Peer reviewers Luis-Felipe Lopez-Calva, Caroline
Freund, Bill Maloney, Aaditya Mattoo, and Russell Hillberry provided very helpful
advice and comments on the report.
This report would not have been timely or relevant without the insights and
inputs of European Central Bank staff members, who provided data, analysis, and
technical support for the work on “Knowledge Transfers from International
Openness in Trade and Investment: The European Case,” and staff members of
the International Civil Aviation Organization, particularly Dr. Ananthanarayan
Sainarayan and colleagues, who generously provided data on origin-to-destination
airline connectivity. Private and public sector organizations and experts in Romania
and Moldova also provided significant inputs and insights; in Romania: Startnet,
Softelligence, Fondul Proprietatea, the Foreign Investors Council, Oracle România,
the Ministry of Transport, the Ministry of External Commerce, the Ministry of
Communications and Information Society, UPC Romania, Dr. Adrian Curaj
(UNESCO), AmCham, H. Essers, Robin Martens (International Project Management),
Kuijken Logistics Group, and Autonom Rent-A-Car; in Moldova: Ionel, Andragrup
SRL, the European Business Association, GIZ (German Cooperation for International
Development), the Ministry of Transport and Roads Infrastructure, APIUS, Moldova
Investment and Export Promotion Organization, the Ministry of Finance, Star
Legal Consulting, AmCham, Danube Logistics, and the Bureau for Relations with
the Diaspora.
xxv
xxvi ● Critical Connections: Promoting Economic Growth and Resilience in Europe and Central Asia
Many people participated in the writing of the report. The main authors and
contributors were
• Overview: David Michael Gould

• Chapter 1: David Michael Gould, Dror Kenett, and Georgi Panterov (with con-
tributions from Angel Bogoev [American University], Michael Danziger [Center
for Complex Network Research and Department of Physics, Northeastern
University], Dobrina Gogova, Xin Yuan [Boston University], and Tlek Zeinullayev
[Harvard University])
• Chapter 2: Paloma López-Garcia (European Central Bank) and Daria Taglioni
(with contributions from Francesco Chiacchio [European Central Bank], Alvaro
Espitia, Katerina Gradeva [European Central Bank], Laura Gomez-Mera, Asier
Mariscal [Carlos III University of Madrid], Nadia Rocha, and Gonzalo Varela)
• Chapter 3: Shawn Tan, Hernan Winkler, and Thea Yde-Jensen
• Chapter 4: Erhan Artuc and Çağlar Özden (with contributions from Gnanaraj
Chellaraj, Julio Elias, David Michael Gould, Bingjie Hu, Zovanga Kone, Tu Chi
Nguyen, and Michael Packard)
• Chapter 5: Cecilia Briceno-Garmendia, Mathilde Lebrand, and Megersa Abate
(with contributions from Rodrigo Archondo, Gözde Isik, and Tetyana Kuchma)
• Chapter 6: Mathilde Lebrand
• Chapter 7: Omar Bamieh (University of Vienna), Matteo Fiorini (European
University Institute), and Bernard Hoekman (European University Institute)
• Spotlights 1 and 2: Gonzalo Varela and Nadia Rocha
• Spotlight 3: Hernan Winkler
• Content and Technical Editing: William Shaw
• Overview Editing: Richard Alm
Ekaterina Ushakova oversaw the production and support of the report. Many
thanks go to all the commentators and reviewers in the initial stages of the report,
particularly Europe and Central Asia Country Directors and Managers and Cyril
Muller, Vice President of the World Bank’s Europe and Central Asia Region.
Abbreviations
AMI average management index

BIT bilateral investment treaty
BRI Belt and Road Initiative
BvD Bureau van Dijk
CIS Commonwealth of Independent States
CMEA Council for Mutual Economic Assistance
DCFTA Deep and Comprehensive Free Trade Agreements
EBRD European Bank for Reconstruction and Development
ECA Europe and Central Asia
EEA European Economic Association
EEC European Economic Community
EU European Union twenty-eight member countries
EU13 Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Hungary,
Latvia, Lithuania, Malta, Poland, Romania, Slovakia, and Slovenia
EU15 Austria, Belgium, Denmark, Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden,
and the United Kingdom
EU15+ EU15 plus Norway and Switzerland
FDI foreign direct investment
FDIRRI FDI Regulatory Restrictiveness Indicators
GATS General Agreement on Trade in Services
GDP gross domestic product
GVC global value chain
HIC high-income country
ICT information and communication technologies
LMIC lower-middle-income country

MBI Mobility Barriers Index
MDC multidimensional connectivity
MFN most favored nation
MIPEX Migrant Integration Policy Index
MNE multinational enterprise
NACE European Classification of Economic Activities
NAFTA North American Free Trade Agreement
NTM nontariff measures
NUTS-3 nomenclature of territorial units for statistics (Nomenclature des
Unités territoriales statistiques), level 3
xxvii
xxviii ● Critical Connections: Promoting Economic Growth and Resilience in Europe and Central Asia
OECD Organisation for Economic Co-operation and Development

OLS ordinary least squares
PMR product market regulation
PPML Poisson pseudo–maximum likelihood
PTA preferential trade agreement
RTA revealed technology advantage
SPS sanitary and phytosanitary
TBT Technical Barriers to Trade
TFP total factor productivity
TiVA Trade in Value Added
TRIMS Trade Related Investment Measures
UMIC upper-middle-income country
WDI World Development Indicators
WEF World Economic Forum
WITS World Integrated Trade Solution
WMS World Management Survey
WTO World Trade Organization
Countries and Economies

International Organization for Standardization three-letter country codes; italics
designate countries in the Europe and Central Asia region
AFG Afghanistan
ALB Albania
ARE United Arab Emirates
ARG Argentina
ARM Armenia
ATG Antigua and Barbuda
AUS Australia
AUT Austria
AZE Azerbaijan
BEL Belgium
BEN Benin
BFA Burkina Faso
BGD Bangladesh
BGR Bulgaria
BHS Bahamas, The
BIH Bosnia and Herzegovina
BLR Belarus
BLZ Belize
BRA Brazil
BRB Barbados
BWA Botswana
CAN Canada
CHE Switzerland
CHL Chile
Abbreviations ● xxix
CHN China
COL Colombia
CMR Cameroon
CRI Costa Rica
CYP Cyprus
CZE Czech Republic
DEU Germany
DNK Denmark
DOM Dominican Republic
DZA Algeria
ECU Ecuador
EGY Egypt, Arab Rep.
ESP Spain
EST Estonia
ETH Ethiopia
FIN Finland
FRA France
GAB Gabon
GBR United Kingdom
GEO Georgia
GHA Ghana
GRC Greece
GUY Guyana
HKG Hong Kong SAR, China
HRV Croatia
HUN Hungary
IDN Indonesia
IND India
IRL Ireland
ISL Iceland
ISR Israel
ITA Italy
JAM Jamaica
JOR Jordan
JPN Japan
KAZ Kazakhstan
KEN Kenya
KGZ Kyrgyz Republic
KWT Kuwait
LBN Lebanon
LTU Lithuania
LUX Luxembourg
LVA Latvia
MDA Moldova
MEX Mexico
MKD Macedonia, FYR
MLT Malta
xxx ● Critical Connections: Promoting Economic Growth and Resilience in Europe and Central Asia
MNE Montenegro
MOZ Mozambique
MUS Mauritius
MYS Malaysia
NAM Namibia
NGA Nigeria
NIC Nicaragua
NLD Netherlands
NOR Norway
NZL New Zealand
OMN Oman
PAK Pakistan
POL Poland
PRT Portugal
PRY Paraguay
ROU Romania
RUS Russian Federation
SAU Saudi Arabia
SGP Singapore
SRB Serbia
SWE Sweden
SVK Slovak Republic
SVN Slovenia
SWZ Swaziland
THA Thailand
TJK Tajikistan
TKM Turkmenistan
TTO Trinidad and Tobago
TUR Turkey
TZA Tanzania
UKR Ukraine
UZB Uzbekistan
XKX Kosovo (not listed as an ISO standard country; the unofficial two-
and three-digit codes are used by the European Commission and
others until an ISO code is assigned)
YUG Serbia and Montenegro (former Yugoslavia)

ZAF South Africa
ZMB Zambia
Regional Classifications Used in This Report
Europe and Central Asia

Northern Europe Southern Europe Central Europe Western Europe Western Balkans
Denmark Greece Bulgaria Austria Albania

Estonia Italy Croatia Belgium Bosnia and Herzegovina
Finland Portugal Czech Republic France Kosovo
Latvia Spain Hungary Germany Macedonia, FYR
Lithuania Cyprus Poland Ireland Montenegro
Sweden Malta Romania Luxembourg Serbia
Slovak Republic Netherlands
Slovenia United Kingdom
South Caucasus Central Asia Russian Federation Turkey Other Eastern Europe
Armenia Kazakhstan Belarus

Azerbaijan Kyrgyz Republic Moldova
Georgia Tajikistan Ukraine
Turkmenistan
Uzbekistan
xxxi
Overview
The countries of the Europe and Central Asia (ECA) region, along with much of the
rest of the world, find themselves engaged in a revival of one of the fundamental
questions of economic policy: how much to open to the rest of the world. At the
turn of the century, the issue seemed largely settled, and most nations viewed
greater openness as a key component of the path to prosperity. In these heady
days, the European Union (EU) deepened with a drive toward greater integration
and expanded by incorporating nations transitioning to market-based economies.
More recent events—most notably, the global financial crisis and the tough times
that followed—sowed the seeds of doubts about the benefits of globalization,
leading to a rise of protectionist and nationalist economic sentiments, exemplified
by Britain’s referendum to withdraw from the EU. In 2018, how much to open to
the rest of the world now dominates the political economy of the ECA region, not
just within the advanced EU economies, but also among the emerging economies
of the region. Deciding where to draw the line between openness and protection-
ism has become a pivotal and divisive issue, often tinged with emotion. With this
publication, the World Bank offers new research on the process of economic
integration, showing its potential benefits without ignoring the downsides.
Main Findings of Critical Connections
• The ECA region’s international connectivity through trade, foreign direct invest-
ment (FDI), migration, telecommunications, transportation, and other avenues
2 ● Critical Connections: Promoting Economic Growth and Resilience in Europe and Central Asia
facilitates the transfers of knowledge and technology that are critical to long-
run growth and shared prosperity. These connections complement each other.
For example, migration encourages trade and foreign investment by providing
knowledge spillovers between host and home country markets and supporting
connections to them. Similarly, the internet and efficient transport links are both
necessary for successful e-commerce. Therefore, a balanced approach to
increasing all dimensions of connectivity is desirable.
• The depth of overall connections and the geographic composition of the
connections both matter. Knowledge transfers are greater from countries that
themselves have strong links to third countries. These transfers also emerge
from firm linkages in global value chains as well as foreign ownership and
management that generate local spillovers.
• Deep integration of countries into the EU along many dimensions has gener-
ated important benefits to growth through knowledge transfers. Central Asia,
the South Caucasus, and the Western Balkans have benefited from regional
connections as well, but the gains have been less pronounced. Much of the
difference is due to the lack of direct and indirect connectivity to the wider
global economy in the eastern part of ECA.
• Despite its overall benefits, increased connectivity has encountered opposition—
most notably, Britain’s June 2016 vote to exit the EU. National challenges often
contribute to the backlash, but increased connectivity can expose ECA countries
to external 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.
Introduction
The ECA region has a rich history of regional integration and connectivity to the
broader world economy, which has stimulated the growth of knowledge and tech-
nological innovation. Indeed, through migration, trade, investments, and other
interactions, ECA countries have depended on, and benefited from, connectivity
with other countries for centuries. The Silk Road, formally established during
China’s Han Dynasty in the second century BCE, facilitated more than the exchange
of commercial goods. It was also a conduit for art, religion, philosophy, technology,
language, science, and architecture (Starr 2015). Similarly, the Age of Discovery
(1453–1660 CE) led to the deepening of a global community that was associated
with profound advances in commerce and culture. As new navigation technology
made sailing long distances possible, Europeans took to the seas to forge direct
trading relationships with China, Indonesia, and Japan. Historians contend that it
was the spice trade that fueled the development of faster boats, encouraged the
discovery of new lands, and fostered new diplomatic relationships between East
and West (Parthesius 2010; Bernstein 2013).
In recent times, the most prominent feature of ECA connectivity has been
regional integration through the gradual expansion of what is now the EU. The 1951
European Coal and Steel Community, a sectoral integration initiative among
six European states, led to a much more ambitious agreement to form a European
Overview ● 3
Economic Community in 1957. Over the next half century, the Community grew
incrementally in geographic reach, issue coverage, and depth of policy cooperation.
Within the EU, economic connections have progressively deepened from the initial
lowering of trade barriers through the Single Market’s convergence of regulation
and finally the adoption of the euro as a common currency by 19 member states.
Today, the 28-country EU incorporates the free movement of goods, services, capi-
tal, and people, with associated supranational common institutions—all the hard-
won results of a multigenerational push toward greater connectivity.
A major feature of European integration in the past 20 years has been the
process of EU accession—most notably by 10 Baltic and Central European coun-
tries (the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, the Slovak
Republic, and Slovenia in 2004, followed by Bulgaria and Romania in 2007). Until
the dissolution of the Soviet Union in 1991, the 10 nations that joined the EU had
in one form or another been part of the ECA region’s second major regional bloc:
the Council for Mutual Economic Assistance. The perceived advantages of con-
nectivity led to a looser form of economic integration and cooperation between
Russia and the former Soviet republics—the Commonwealth of Independent
States (CIS). In the past decade, Russia has sought to deepen the CIS into a com-
mon market and economic union and pursued a process of deepening economic
integration with a subset of its neighbors through the creation of a Eurasian
Economic Union. However, while progress has been made, the strength of global
connectivity in the CIS remains much lower than in the EU.
The ECA region’s growing participation in global and regional supply chains
has greatly increased the importance and variety of international economic con-
nections across the region. These forces have expanded ECA countries’ regional
connections more rapidly than their connections outside the region. Nevertheless,
as shown in the example of trade connectivity (figure O.1), many ECA countries
have achieved substantial increases in global connectivity through their links to
other ECA countries, such as Germany (DEU in the figure), France (FRA), or the
United Kingdom (GBR), that have strong global connections.
The ECA region’s persistent efforts to integrate reflect at the very least an intui-
tive appreciation of the potential benefits from greater connectivity. More formally,
economists have recognized the superiority of openness over autarky. In studying
linkages between nations, they have focused on how knowledge transfers through
international connectivity boost long-term growth, rather than one-time jumps in
output due to gains from specialization (Romer 1990). Much of the knowledge
gain from connectivity comes from “tacit” knowledge—the kind that comes
through learning by doing and face-to-face interactions. Unlike “explicit” knowl-
edge, it cannot be transferred in texts and blueprints.
When looking at connectivity and knowledge transfers, analysts typically con-
sider one channel at a time—such as trade, FDI, migration, telecommunications,
or transport links. While many cross-country studies find, for example, that the
level of trade or FDI relative to gross domestic product (GDP) is positively associ-
ated with growth, they generally do not consider how many forms of connectivity
work together. For example, it is hard to imagine trade taking place on the historic
Silk Road without migration and transportation networks, or the recent develop-
ment of e-commerce without high-speed internet and an efficient means of trans-
ferring goods from one country to another.
FIGURE O.1 Exports of manufactured goods
a. 2000 b. 2014
Source: Calculations based on data from the United Nations Conference on Trade and Development.
Note: The size of each country node reflects the total volume of trade. Each node has two outgoing links, which point to the country’s two top
export partners. Countries in the Europe and Central Asia region are shown in shades of blue. The methodology for plotting the countries
attempts to show clearly the connections between countries in the global network of countries. The largest country nodes are pulled to the outer
boundaries of the figure, but the pull is counterbalanced by the number and strength of connections with partner countries. Consequently,
country nodes will tend to be grouped together if they share common connections.
The importance of each connectivity channel for growth is likely to be affected

by the strength of other channels—particularly when technology transfers depend
on both tacit and explicit knowledge. For example, FDI by higher-income ECA
economies in those with lower incomes can be an important source of knowledge
transfers through exposure to sophisticated production techniques and manage-
ment styles that are learned “on the job.” Migrants often learn important skills
working abroad, and workers and managers from the investing country typically
accompany the FDI. Thus, FDI and migration can work together to accelerate
technology transfers within ECA. In Moldova, for example, connections developed
through migration to Northern, Western, and Southern Europe in the 1990s sub-
sequently generated Italian investment in the garment industry as well as German
investment in factories for the assembly of electronic car components. Because of
these initial connections and foreign investments, Moldova is now developing a
service and manufacturing industry for the local market, creating its own brands,
and exporting to other ECA countries.
In addition to being mutually reinforcing, connectivity channels vary in depth and
geographic composition. Being well connected to highly connected countries can
provide benefits beyond being well connected to comparatively isolated countries.
The advanced economies in Europe have provided a gateway for knowledge
Overview ● 5
transfers from outside of ECA. Poland, for example, leveraged its growing ties to
Germany to develop connections with that country’s trading partners and expand
trade to broader markets within Europe and beyond. In the ECA region and other
parts of the world, greater connectivity has delivered overall economic benefits for
growth and development. Regional and global connectivity have been a tremen-
dous “convergence machine,” raising living standards in lower-income countries to
those of wealthier middle- to high-income countries (see World Bank 2012).
The gains, however, are not evenly distributed or universally recognized. The
2007 global economic crisis and various commodity price shocks underscored the
importance of understanding the potential risks of increased connectivity transmit-
ting shocks from one country to another.1 Voters, both in Europe and elsewhere, are
now questioning whether the benefits of greater connectivity are worth the costs. In
addition to the United Kingdom’s 2016 vote to exit the EU (Brexit), recent elections
in several European countries reflect an underlying skepticism regarding the benefits
of deepening cooperation, with voters increasingly favoring parties seeking greater
national autonomy instead of greater regional integration. Some analysts have
attributed the lack of enthusiasm to concerns over the large migration flows and
recent influx of refugees. Certainly, large sudden shifts in migrant flows, due to natu-
ral disasters or wars, bring critical societal issues into play for domestic policy consid-
eration. But larger questions have been raised about the downsides of regional
integration and globalization in general and the role that deeper integration initia-
tives have played as a driver in the rise of populism (see, for example, Rodrik 2018).
Thus far, the skepticism has not led to a widespread retreat from integration
among ECA countries. The institutions and policies that promote regional and
global connectivity remain largely intact, with most countries continuing
to benefit. However, ECA integration has been slowing, and the chal-
lenges and questions call for a better understanding of ECA connectiv- While recognizing
ity and its economic impacts. Analyzing the evolution of ECA’s regional the benefits of greater
and global connectivity calls for paying particular attention to how connectivity, it is
the various types of connections have interacted with one another
important to acknowl-
edge the potential
and why connectivity in the region and in the larger global network
downside risks through
has played a key role in boosting growth and living standards. While
the transmission of
recognizing the benefits of greater connectivity, it is important to economic shocks.
acknowledge the potential downside risks through the transmission of
economic shocks as well as the choices countries face regarding which
types of connections to strengthen with various partner countries.

This Overview summarizes the main findings of the World Bank flagship study
Critical Connections.2 The flagship’s primary purpose is to offer a deep analysis of
ECA connectivity and how it has evolved over the past two decades. The frame-
work and logical flow of chapters for this report is shown in figure O.2. In a key
innovation of the study, a network analysis measure of multidimensional connectiv-
ity captures the relationship between different forms of connectivity and their joint
impacts on growth and the transmission of shocks (chapter 1). The next step is to
examine how knowledge flows through trade and investment channels from the
ECA’s frontier firms to less technically advanced companies, improving productiv-
ity at the firm level (chapter 2). In the ECA region, firm connectivity does not just
exert its influence through foreign investment; it also works through enhancing
FIGURE O.2 Framework and

logical flow of chapters for Multidimensional Connectivity:
Overall
Pathways to Growth and Shared Prosperity in Europe and Central Asia
this report connectivity
(chapter 1)
Knowledge Transfers from

Informational Connectivity and Firms Migration and Connectivity
International Openness in Trade
channels (chapter 3) (chapter 4)
and Investment (chapter 2)
Conduits for Infrastructure Linkages

connectivity (chapter 5)
Organizational Supply Chains in Europe and Central Asia

outcomes (chapter 6)
ECA Policies for Improving Connectivity

Policies
(chapter 7)
management practices. Ties between firms are associated with better outcomes
in foreign-owned or -managed firms as well as with spillover effects that improve
outcomes in locally owned and managed firms (chapter 3). Another complemen-
tary channel of ECA connectivity is migration (chapter 4). A new methodology for
filling in large gaps in our knowledge of ECA migration, particularly regarding skills
and gender, provides insights into the trends and determinants of migration and
migration’s economic impact on the region.
Facilitating the movement of people and goods across the ECA region is the
focus of the next layer of connectivity: infrastructure linkages (chapter 5). Another
key innovation looks at the time and cost involved in moving goods and people
across the region, rather than the kilometers and density of roads and rail links.
This network analysis yields a richer perspective on the ECA’s transport links. The
development of supply chains has been a key organizational outcome of the depth
of ECA informational channels and conduits for connectivity (chapter 6). The
development of Europe’s supply chains (“Factory Europe”), and the efficiency
gains they provide, reflects the successes of narrowing policy barriers to trade,
investment, migration, information and communication technology (ICT), and
transport. Finally, ECA countries’ policy progress in supporting international con-
nectivity over time and relative to other countries is evaluated to guide future
policy actions (chapter 7).
Multidimensional Connectivity Is a Key to Europe and

Central Asia’s Development and Growth
International connections include trade, FDI, migration, ICT, and transport

links. Most studies measure the impact of each of these channels individually.
This study takes a different approach, creating an indicator that combines all
channels (networks) in a functional form that recognizes their complementarity—
the multidimensional connectivity index (represented in figure O.3 as the MDC
network). The measure reflects both the depth of each channel between each
Overview ● 7
FIGURE O.3 Multidimensional

connectivity combines many
channels of connectivity
Trade network
FDI network
N-network
MDC network
Note: This figure presents an indicative representation of the multidimensional connectivity (MDC)
network that incorporates the relationship between all networks—trade, FDI, and other measured
global networks (N)—into a single collapsed network. A modified form of PageRank centrality for each
country (node) is developed based on this collapsed network and used as an indicator of how overall
connectivity influences growth overall and growth of the bottom 40 percent of the income distribution.
FDI = foreign direct investment.
pair of countries (e.g., the size of bilateral trade relative to each country’s GDP)
and the benefits a country may reap from being connected to another well-
connected country (e.g., Croatia’s trade with Germany is likely to boost
knowledge spillovers more than Croatia’s trade with Albania owing to Germany’s
wider global connections in addition to its higher level of technology).

Compared with traditional approaches, this method more accurately mea-
sures a country’s exposure to knowledge flows via direct and indirect interna-
tional connections. The analysis presented in this study emphasizes the
importance of complementary and balanced connectivity across the various
channels. The impact on growth of any single connectivity channel is expected
to decline as additional knowledge gains from the channel diminish—unless
other channels of connectivity grow as well. In other words, policies to improve
trade without complementary policies to improve investment and transport will
have diminishing returns. Thus, promoting balanced connectivity across trade,
transport, foreign investment, and other channels is likely to be more beneficial
than focusing on enhancing only one channel.
TABLE O.1 Multidimensional Connectivity Varies by ECA Subregion, with the Highest Connectivity in the
Western Part of the Region and the Lowest in the Eastern Part
Multidimensional
ECA subregions connectivity Trade FDI Migration ICT Airline Portfolio flows
High connectivity
Western Europe 6 6 6 9 9 15 19
Northern Europe 12 12 17 26 21 23 22
of which Baltics 30 28 36 38 50 28 21
Southern Europe 25 24 26 21 28 23 22
Central Europe 31 27 34 36 41 46 46
Medium connectivity
Russian Federation 55 53 61 28 63 64 83
Turkey 57 51 67 33 73 79 40
Eastern Europe 62 59 60 81 54 57 76
Low connectivity
Western Balkans 88 75 97 45 88 86 99
Central Asia 94 99 93 101 101 103 101
South Caucasus 104 104 102 64 104 104 93
Note: The table shows global rankings, from best to worst, in combined per capita connectivity, with lower values indicating better
connectivity. Subregion indicators are median values of the subregion’s countries ECA = Europe and Central Asia; FDI = foreign direct
investment; ICT = information and communication technology.
The various channels exhibit some degree of substitutability, but complemen-

tarity dominates. In some contexts, for example, trade may substitute for FDI
because firms can either export a product to a foreign market or invest in the for-
eign market to produce there. However, the information flows from trade tend to
complement those from FDI. Firms may discover opportunities to export to a for-
eign market because of their exposure through investing there. Thus, improving
connectivity in one dimension improves connectivity through other channels.
In terms of per capita levels in ECA subregional multidimensional connectivity
(table O.1), Western Europe has the highest global ranking, followed by Northern,
Central, and Southern Europe, while Russia, Turkey, and Eastern Europe are in
the middle range, and the Western Balkans, Central Asia, and the South Caucasus
have the lowest levels of overall connectivity. Not surprisingly, higher per capita
levels of connectivity are associated with higher levels of development, reflect-
ing both the number and depth of connections a country has. Tables OA.1 and
OA.2 show individual country rankings of multidimensional connectivity on an
absolute and a per capita basis, respectively. Central Asia and the South Caucasus
rank low on overall connectivity, but because they started from a low base, they
also saw the greatest improvement from 2000 to 2014 (figure O.4). The South
Caucasus saw connectivity increase by nearly 75 percent, while Central Asia saw
connectivity increase by more than 40 percent. Eastern Europe and the Western
Balkans, although also starting from relatively low levels, have not seen increases
as rapid, with connectivity increasing only 20 percent and 10 percent, respec-
tively. The key challenge for these regions is to find ways to improve balanced
Overview ● 9
FIGURE O.4 Europe and Central Asia’s connectivity has grown, but there are wide variations across
subregions
Growth in connectivity, percent, 2000–14
80
70
60
50
40
30
20
10
0
Central Central Eastern Northern Russian South Southern Turkey Western Western Global
Asia Europe Europe Europe Federation Caucasus Europe Balkans Europe
Note: Subregional and global indicators are median growth rates.
connectivity, particularly through easing domestic constraints on doing business

and facilitating trade, FDI, airline, and ICT connectivity. For the ECA region as a
whole, while improvements in connectivity have slowed since 2008, it still has
grown faster than global connectivity since 2000, reflecting the EU integration
process as well as strides taken in transition economies.
Using this study’s new MDC measure, we find a closer association with growth
than when considering individual connectivity indexes separately. In the ECA
region, the depth of a country’s international connections in 2000 contributed to
growth over the subsequent 16 years, after accounting for other fundamental
determinants of growth typically used in cross-country studies (such as initial
GDP, education, size of government, inflation, investment rate, and quality of
governance). This is because a deepening of each channel tends to increase the
growth impact of other channels. The association between MDC and growth is
shown in figure O.5, along with each individual component connectivity channel.
The level of trade connectivity has the most significant individual impact on
growth, followed by measures of connectivity through FDI, migration, and airline
flights. Trade connectivity is statistically significant and associated with more rapid
income growth of the bottom 40 percent of the income distribution, but the other
connectivity indicators are not, perhaps because the bottom 40 percent benefit
more directly from trade and less so from other forms of connectivity.
The increase in international connectivity over the past decade has occurred in
tandem with severe disruptions to the international economy, most notably the
global financial crisis. Greater connectivity may have increased ECA countries’
exposure to such shocks, but it may also have increased countries’ ability to cope
with them. Least vulnerable to shocks are countries with very high levels of connec-
tivity and countries with very low levels of connectivity. The former can more easily
find alternative export markets or sources of finance, and the latter are more insu-
lated from the global economy. Countries in the middle of the range tend to be the
most vulnerable to shocks for lack of easy alternatives to compensate for declines
FIGURE O.5 Connectivity’s

a. Single-dimension connectivity effects on overall and bottom-40 growth
effects on overall and 1.6
***
bottom-40 growth 1.4
1.2
1.0
0.8
0.6 *** ***
0.4 *
0.2 *
0
–0.2
–0.4
Trade FDI connectivity Migration ICT connectivity Portfolio flows Airline
connectivity connectivity connectivity
Overall growth Bottom-40 growth
b. Multidimensional connectivity effects on overall and bottom-40 growth
1.6 ***
1.4
1.2
1.0
0.8 ***
0.6
0.4
0.2
0
Multidimensional connectivity
Overall growth Bottom-40 growth
Note: All coefficients (except those on multidimensional connectivity) are estimated with ordinary least
squares regression; multidimensional connectivity is estimated using a maximum likelihood procedure.
The connectivity variables, including multidimensional connectivity, are normalized using the standard
normal distribution; therefore, the size of the coefficient represents the annual growth impact of a one-
standard-deviation change. FDI = foreign direct investment; ICT = information and communication
technology.
Significance level: * = 10 percent, ** = 5 percent, *** = 1 percent.
in connectivity. One example is countries highly dependent on a well-connected

country—as shown in figure O.6 in the case of a shock originating in Germany.
Using multidimensional connectivity to better understand the transmission
of shocks also indicates that ripples radiate across countries indirectly con-
nected to places experiencing hard times. The impacts are not always obvious.
Take, for example, the potential impact of Brexit. In this example, a 20 percent
drop in all connections between the United Kingdom and the 27 remaining EU
countries (EU27) is simulated. As expected, the United Kingdom suffers the
greatest harm, followed by small countries of the EU27, such as Malta and
Ireland, that get most of their global connectivity through the UK. However,
other countries outside the EU that are not directly affected by Brexit, such as
Norway, Senegal, Libya, and Fiji, are nonetheless indirectly affected through
Overview ● 11
FIGURE O.6 A shock originating in Germany has the largest impact on countries that gain their global
connectivity through Germany
Shock: 10 percent fall in all types of connectivity
0 SGP
URY NZL HKG CAN
PAN AUS
BLZ PRY TTO ARG
JAM SLV MYS IRL
KGZ GUY KWT ECU GTM MEX
OMN BLR THA
–1 ATG BRN SWZ JOR QAT CRI SAU NOR SWE
BWA FIN GBR
BEN GAB ALB MUS ARE LUX JPN
AZE GEO MOZ BHS DOM PER ISR IDN BRA CHN
ARM CYP NGA MAR CHL FRA
AFG CMR KEN COL USA
TGO ETH ESP BEL
Change in level of connectivity (percent)
BFA TJK NAM GHA DNK

LBN DZA EST EGY
LVA ZAF IND
BRB PRT CHE
–2 TUN
LTU ITA
PAK
BHR BGR NLD
BIH
RUS
MKD
KAZ
GRC
–3 SVK
CZE
Most affected by shock

HUN due to high reliance
–4
MLT on connectivity
HRV AUT with Germany
SYR TUR
MDA
BGD
–5 LKA POL
UKR
–6
0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6
Initial level of connectivity: Multidimensional index
TABLE O.2 EU and Non-EU Countries Most Affected by Brexit

1. United Kingdom 15. Italy
2. Malta 16. Poland
3. Ireland 17. Germany
4. Cyprus 18. Latvia
5. Netherlands 19. Finland
6. Denmark 20. Hungary
7. Luxembourg 21. Czech Republic
8. Sweden 22. Senegal
9. France 23. Libya

10. Spain 24. Suriname
11. Norway 25. Slovenia
12. Greece 26. Fiji
13. Portugal 27. Iceland
14. Belgium 28. Austria
Note: The table ranks countries according to the impact on the countries from Brexit, with a ranking of
1 indicating the greatest impact. EU = European Union.
the connections of connections (table O.2). Interestingly, these countries are

more affected by Brexit than some EU countries, such as Austria, Estonia,
Lithuania, Romania, and Bulgaria.
How connectivity transmits shocks is relevant to the past decade’s shift in
public sentiment away from openness and toward a more inward-looking stance.
Another random document with
no related content on Scribd:
Periodicals (arrangement), 14-15;
(binders), 37;
(check book), 47;
(files), 37;
(racks), 14-17;
(receipt book), 47;
(stock book), 46.
Precept form, 48.
Press marks, 9-10.
Presses for books, 2-6.
Print boxes, 37.
Proposition book, 43.
Racks (periodicals), 14-17;

(hats, &c.), 20.
Readers’ handbooks, 51.
Reading slopes, 14.
Reading stands (newspapers), 17.
Receipts for fines, 49.
Recipes for paste, stain-removal, &c., 51.
Records of library work, 42.
Reference library (application forms), 50;
(charging), 33.
Remington typewriter, 36.
Renewal forms for books, 51.
Requisition forms (staff), 48.
Revolving book-cases, 9.
Revolving catalogue holder, 35.
Robertson’s indicator, 30.
Rotherham P. L. note-book, 24.
Routine (invoice) book, 44.
Royal College of Surgeons, London, 33.
Rubber stamp ink (Stephens’), 40.
Rubber stamps, 24.
Rubber stamps for books, 40.
Rule-labels, 49.
Rules and regulations, 48.
St. Martin’s Public Library, 15.

Screw newspaper holder, 18.
Seals for Library Boards, 40.
Shannon files, 37.
Shelf-edging, 10;
(fittings), 7;
(numbers), 9;
(registers), 46.
Shelves, 5.
Show cases, 20.
Stains, to remove, 52.
Stamps for books, 40;
(dating), 40;
(issues), 21.
Stationery, 48-51.
Stationery cupboards, 12.
Steps for libraries, 41.
Stickphast paste, 52.
Stitching machines, 38.
Stock book, 44.
Stone’s card catalogue cabinet, 34.
Store presses, 12.
Studs for shelves, 8.
Suggestion book, 43.
Superintendents’ desks, 12.
Tables, 12-14.
Tablets for directing to libraries, 42.
Technical appliances, 20.
Thanks circulars, 43, 48.
Ticket-books, 24.
Tickets for borrowers, 49.
Time (assistants’) book, 48.
Tonks’ shelf fitting, 7.
Tray book-cases, 6.
Trucks for books, 42.
Trypograph copying machine, 37.
Typewriters, 35-36.
Umbrella stands, 19.
Voucher forms, 49.
Wake and Dean’s book-holder, 40.

Walker’s book-rack, 39.
Waterston’s borrowers’ note-book, 24.
Wire-fronted book-cases, 10.
Wire-stitching machines, 38.
Wolverhampton Public Library, 15.
Work book, 48.
Yost typewriter, 36.
Zaehnsdorf’s paste, 52.

ABERDEEN UNIVERSITY PRESS.
WAKE & DEAN,

School, Church, & Library Furniture Manufacturers.
111 LONDON ROAD, LONDON, S.E.
GOLD MEDAL, LONDON, 1885. SILVER MEDAL, ANTWERP, 1885.
Manufacturers to Her Majesty’s Stationery Office and War Office.

LONDON SCHOOL BOARD, AND OTHER SCHOOL BOARDS THROUGHOUT ENGLAND,
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Critical Connections Promoting Economic Growth and Resilience in Europe and Central Asia 1st Edition David Michael Gould

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Critical Connections Promoting

Economic Growth and Resilience in

Risks and Returns Managing Financial Trade Offs for

China s Belt and Road Initiative Strategic and Economic

Promoting Belonging Growth Mindset and Resilience to

Aid for Trade in Asia and the Pacific Promoting

Reaping Digital Dividends Leveraging the Internet for

Growth Mechanisms and Sustainability: Economic Analysis

The Role of Innovation and Entrepreneurship in Economic

Illiberal and authoritarian tendencies in Central

Some rights reserved

Rights and Permissions

About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii

1 Multidimensional Connectivity: Pathways to Growth

Annex 1A. Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77

Spotlight 1: Trends in Foreign Direct Investment in

2 Knowledge Transfers from International Openness

Spotlight 2: Attracting Foreign Direct Investment: The

3 Connectivity and Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125

Main Messages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125

Spotlight 3: Reaping Digital Dividends through

4 Migration and Connectivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .161

5 Infrastructure Linkages: Cost, Time, and Networks . . . . . .199

6 Supply Chains in Europe and Central Asia: Connectivity

Annex 6B. Interdependence of Countries . . . . . . . . . . . . . . . . . . . . . . . . .263

7 ECA Policies for Improving Connectivity. . . . . . . . . . . . . . . . .269

Preferential Trade Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .284

but there are wide variations across subregions . . . . . . . . . . . . . . .69

S1.4 FDI attraction patterns increase with development levels but

likelihood of its being foreign owned . . . . . . . . . . . . . . . . . . . . . .129

3.10 The positive spillovers of well-managed foreign firms seem

4.11 High-income ECA countries are much more permissive toward

5.5 Cost and time connectivity in the ECA network . . . . . . . . . . . . . .209

6.9 Participation in global value chains is correlated with

6.15 ECA Non-EU countries mainly import final goods and

7.20 Bilateral investment treaties across global regions . . . . . . . . . . . .289

7.28 Horizontal product market regulation in ECA subregions . . . . . . .294

S2A.6 Regression Results: Deep Agreements and Foreign

3.4 Foreign Firms Locate in Regions and Sectors with Larger

7.1 Policy Measures and Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . .276

Megersa Abate (World Bank) is a Transport Economist in the World Bank’s

Omar Bamieh (University of Vienna) is an Assistant Professor of Economics at

interaction between legal frameworks and labor markets. He holds an MS in

Cecilia Briceno-Garmendia (World Bank) is a Lead Economist in the World

Matteo Fiorini (European University Institute) is a Research Fellow in Global

Bernard Hoekman (European University Institute) is a Professor at the Robert

Dror Y. Kenett (World Bank) is a multidisciplinary financial economist and an

held a researcher position in the US Department of the Treasury’s Office of Financial

Mathilde Lebrand (World Bank) is an Economist in the World Bank’s Transport

Paloma López-Garcia (European Central Bank) has been a Senior Economist in

Nadia Rocha (World Bank) is a Senior Economist in the World Bank’s

Shawn Tan (World Bank) is an Economist in the World Bank’s Finance,

Hernan Winkler (World Bank) is a Senior Economist in the World Bank’s

advance economic growth and shared prosperity.

Moreover, the depth of ECA’s connections and the geographic composition of

connections in the coming decades.

• Overview: David Michael Gould

AMI average management index

LMIC lower-middle-income country