As the ability to generate great ideas in the CEE region is limited, it seems that in the transition period the most important modernization channel in the region was through foreign direct investments. Indeed CEE became a very large recipient of FDI, with FDI stock to GDP ratio topping 40 percent in CEE-4 region. Only NIEs economies managed to attract higher FDI stock in relation to GDP and enjoy higher FDI annual inflows. 2  BIS Review 138/2007  However, in the global knowledge economy it is important to attract foreign direct investments to sectors that can become globally competitive, in particular to these sectors that export high-technology, i.e. high value added goods or services. While CEE-4 significantly improved the structure of exports, the high-tech goods account for only 12 percent of manufactured exports, which is the world worst result, lagging even behind Latin American countries. NIEs are world leaders and China is about to take over the second post from the United States. Above data suggests that in the long run low ability to generate innovation combined with low value added FDI may harm the CEE ability to improve productivity. On top of above-mentioned factors I should also add that in the last few years we have witnessed very fast growth rates of asset prices in CEE. The amount of loans granted to households increased 3.5 times since 2004 and almost 10 times since 2000.
The crucial factor to succeed in the global knowledge economy is the country’s ability to develop intellectual capital. Only those who understand the importance of innovations for growth will thrive and prosper in the coming decades. Unfortunately, CEE region lags badly behind the leaders in terms of its current and future ability to generate innovation. One of indicators measuring current ability to innovate is the number of researchers. In the mid-1990s CEE-4 (the Czech Republic, Hungary, Poland and Slovakia) and Asian NIEs had similar number of researchers per million people, while two years ago NIEs had almost twice as many persons employed in R&D per million people in comparison with CEE-4. Future knowledge potential of particular country or region can be measured by tertiary enrolment ratio. Tertiary enrolment ratio in the CEE-4 countries improved to 50 percent in 2004, but still remains well below 62 percent in the EU-15 and 82 percent in the United States.. Because of a relatively small population and a number of structural deficiencies it is very unlikely, that increase in the number of students in CEE-4 that have occurred in recent decade will translate into higher innovation potential in the coming years, unless a dramatic change in policies in CEE-4 is made. This is also confirmed by a dramatically low number of patents registered in the CEE countries and extremely low number of scientific publications.