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Prelims

Modeling Economic Growth in Contemporary Czechia

ISBN: 978-1-83753-841-6, eISBN: 978-1-83753-840-9

Publication date: 8 April 2024

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(2024), "Prelims", Stavárek, D. and Tvrdoň, M. (Ed.) Modeling Economic Growth in Contemporary Czechia (Entrepreneurship and Global Economic Growth), Emerald Publishing Limited, Leeds, pp. i-xxix. https://doi.org/10.1108/978-1-83753-840-920241021

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Emerald Publishing Limited

Copyright © 2024 Daniel Stavárek and Michal Tvrdoň. Published under exclusive licence by Emerald Publishing Limited

Half Title Page

Modeling Economic Growth in Contemporary Czechia

Series Title Page

Entrepreneurship and Global Economic Growth

Series editor: Bruno S. Sergi, Harvard University, USA

Entrepreneurship and Global Economic Growth is Emerald's cutting-edge Global Economic Growth book series, presenting modern examinations of economic growth at national, regional and global levels. Each book in this series discusses different dimensions of the changing economic and industrial contexts, and examines in detail their impact on the nature of growth and development. For academics and senior practitioners, this series puts forward significant new research in the global economic growth field, opening discussions regarding new topics and updating existing literature.

Published Titles in This Series

Modeling Economic Growth in Contemporary Russia, edited by Bruno S. Sergi

Modeling Economic Growth in Contemporary Belarus, edited by Bruno S. Sergi

Modeling Economic Growth in Contemporary Malaysia, edited by Bruno S. Sergi and Abdul Rahman Jaaffar

Modeling Economic Growth in Contemporary Greece, edited by Vasileiois Vlachos, Aristidis Bitzenis and Bruno S. Sergi

Modeling Economic Growth in Contemporary Poland, edited by Elżbieta Bukalska, Tomasz Kijek and Bruno S. Sergi

Forthcoming Titles in This Series

Modeling Economic Growth in Contemporary India, edited by Bruno S. Sergi, Aviral Kumar Tiwari and Samia Nasreen

Title Page

Modeling Economic Growth in Contemporary Czechia

Edited By

Daniel Stavárek

Silesian University in Opava, Czechia

And

Michal Tvrdoň

Silesian University in Opava, Czechia

United Kingdom – North America – Japan – India – Malaysia – China

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Emerald Publishing Limited

Emerald Publishing, Floor 5, Northspring, 21-23 Wellington Street, Leeds LS1 4DL

First edition 2024

Editorial matter and selection © 2024 Daniel Stavárek and Michal Tvrdoň.

Individual chapters © 2024 The Authors.

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ISBN: 978-1-83753-841-6 (Print)

ISBN: 978-1-83753-840-9 (Online)

ISBN: 978-1-83753-842-3 (Epub)

List of Tables and Figures

Chapter 2
Table 2.1. Relative Economic Level of Czechia in Relation to the Euro Area (GDP per Capita in PPS, EA = 100%). 25
Chapter 3
Table 3.1. IMD and WEF Ranking of Czechia (2002, 2012, 2022). 40
Table 3.2. Territorial Structure of Foreign Trade of Czechia (2002, 2012, 2022) – Export of Goods. 45
Table 3.3. Territorial Structure of Foreign Trade of Czechia (2002, 2012, 2022) – Imports of Goods. 45
Table 3.4. Commodity Structure of Foreign Trade of Czechia (2002, 2012, 2022) – Export of Goods. 46
Table 3.5. Commodity Structure of Foreign Trade of Czechia (2002, 2012, 2022) – Import of Goods. 47
Chapter 4
Table 4.1. Estimated Long-Run Coefficients of Trade Models. 60
Table 4.2. Estimated Short-Run Coefficients of Exchange Rates. 64
Chapter 5
Table 5.1. Changes in Selected Macroeconomic Indicators One Year After the Introduction of the Exchange Rate Commitment. 77
Table 5.2. Changes in Selected Macroeconomic Indicators 2 Years After the Introduction of the Exchange Rate Commitment. 77
Table 5.3. Characteristics of the Foreign Exchange Rate Commitment. 80
Table 5.4. Selected Values and Changes in Foreign Exchange Reserves. 85
Chapter 7
Table 7.1. Evolution of CIT Revenues and Statutory CIT Rates in Czechia. 107
Table 7.2. Depreciation of Tangible Assets, Deductions and Tax Credits in Years 2011–2021 (in CZK Billion). 109
Table 7.3. Pearson's Correlation of Selected Factors. 115
Chapter 8
Table 8.1. Emissions and Damage Costs of T and HGV Types. 126
Table 8.2. Non-Taxed Emissions and Damage Costs According to Vehicle Types. 127
Table 8.3. Non-Taxed Emissions and Damage Costs According to Purpose of Use. 129
Table 8.4. Total Non-Taxed Emissions and Societal Damage. 130
Table 8.5. Potential for the Taxation of Emissions and Societal Damage Caused. 131
Chapter 9
Table 9.1. Average GGE by Functions (2000–2021, in % GDP). 144
Table 9.2. Results of Granger Causality. 149
Chapter 10
Table 10.1. One- and Three-Year Inflation Expectations in Czechia (1999/Q2–2022/Q4). 164
Table 10.2. One- and Three-Year Inflation Expectations of Financial Analysts and Inflation Persistence in Czechia (1999/Q2–2022/Q4). 166
Table 10.3. One- and Three-Year Inflation Expectations of Company Managers and Inflation Persistence in Czechia (1999/Q2–2022/Q4). 167
Table 10.4. Difference Between Inflation Expectations of Financial Analysts and Company Managers in Czechia (1999/Q2–2022/Q4). 168
Chapter 11
Table 11.1. Flat Price Determinants. 177
Table 11.2. House Price Determinants. 178
Table 11.3. Drivers of Divergence Between the Price of Flats and Houses. 179
Chapter 12
Table 12.1. Characteristics of the Unemployment Benefits System. 189
Table 12.2. Measures of Trade Union Relevance (2019). 192
Chapter 13
Table 13.1. Change in Employment Shares in Czechia. 205
Table 13.2. Change in Employment Shares in Czechia and Other Countries Between the Period 1998–2002 and 2017–2021. 207
Table 13.3. Change in Employment Shares in Czechia and Other Countries Between the Period 1998–2002 and 2017–2021 (Males). 208
Table 13.4. Change in Employment Shares in Czechia and Other Countries Between the Period 1998–2002 and 2017–2021 (Females). 209
Chapter 14
Table 14.1. GWI Index Czechia. 223
Chapter 15
Table 15.1. Descriptive Statistics. 242
Table 15.2. Estimated Sectoral Effects. 243
Table 15.3. Variables Amplifying Debt Effects. 245
Chapter 16
Table 16.1. The Relationship Between Banking Sector Development and Economic Growth. 257
Table 16.2. The Relationship Between Insurance Sector Development and Economic Growth. 258
Chapter 17
Table 17.1. The MIMIC Model. 271
Chapter 18
Table 18.1. Number of Enterprises in the Analysed Sample by Enterprise Size. 286
Table 18.2. Number of Enterprises in the Analysed Sample by Ownership Structure Concentration. 287
Table 18.3. GMM Estimates (the Czech Export-to-GDP Ratio as the Dependent Variable). 293

Chapter 1
Figure 1.1. Real GDP Growth in Years 2000–2022 (Quarterly Data, Seasonally and Calendar Adjusted). 3
Figure 1.2. Development of Czech GDP per Capita 2000–2022 (Annual Data, EU-27 = 100). 4
Figure 1.3. Output Gap in Czechia (Quarterly Data, Seasonally and Calendar Adjusted). 5
Figure 1.4. Production in Industry – Manufacturing in Years 2000–2022 (Monthly Data, Seasonally and Calendar Adjusted). 6
Figure 1.5. Household Sector (Quarterly Data, Seasonally and Calendar Adjusted). 7
Figure 1.6. Decomposition of Unemployment (Quarterly Data, Seasonally and Calendar Adjusted). 8
Figure 1.7. Economic Sentiment Indicator (Left Axis) and Real GDP Growth in % (Right Axis) Development in Czechia. 10
Figure 1.8. Business Cycle Indicator (BCI) and Consumer Cycle Indicator (CCI) Development in Czechia. 11
Figure 1.9. Partial External Balances of Czechia (2000–2020, in % of GDP). 12
Figure 1.10. Investment Position of Czechia (2000–2020, in % of GDP). 13
Figure 1.11. Nominal Bilateral and Real Effective Exchange Rate (REER) of Czech Koruna (CZK). 14
Chapter 2
Figure 2.1. Country Comparison Czechia vs Euro Area: Consumer Prices. 20
Figure 2.2. Country Comparison Czechia vs Euro Area: Long-Term Interest Rates on Government Bonds. 21
Figure 2.3. Country Comparison Czechia vs Euro Area: Government Balance. 22
Figure 2.4. Country Comparison Czechia vs Euro Area: General Government Debt. 22
Figure 2.5. Country Comparison Czechia vs Euro Area: Annual Real GDP Growth (in %). 26
Figure 2.6. Country Comparison Czechia vs Euro Area: Minimum Labour Costs in EUR per Hour. 28
Figure 2.7. Country Comparison Czechia vs Euro Area: Minimum Wages in EUR per Month. 28
Figure 2.8. Country Comparison Czechia vs Euro Area: Unemployment Rate (in %). 29
Figure 2.9. Fiscal Situation in Czechia and the Euro Area in 2004. 31
Figure 2.10. Fiscal Situation in Czechia and the Euro Area in 2021. 32
Chapter 3
Figure 3.1. Comprehensive Concept of Systemic Competitiveness Including Its Determinants. 37
Figure 3.2. Balance of Current Account, Balance of Payments and Seasonally Adjusted GDP Index. 44
Chapter 4
Figure 4.1. Development of CZK Against HUF, EUR, PLN and GBP (Index, 1999 = 100). 55
Figure 4.2. Territorial Structure of Foreign Trade of Czechia (1999–2020). 57
Figure 4.3. Development of Product-Level Trade Balances of Czechia. 58
Figure 4.4. Product Structure of Foreign Trade of Czechia (1999–2020). 58
Chapter 5
Figure 5.1. CZK/EUR Exchange Rate Development. 74
Figure 5.2. Use of CNB Tools Between 2012 and 2017. 75
Figure 5.3. The Course of the CNB's Foreign Exchange Interventions. 78
Figure 5.4. CNB Interest Rate Development. 82
Figure 5.5. Size of the CNB's Foreign Exchange Reserves. 84
Chapter 6
Figure 6.1. Inflation Rate in Czechia and the EU27. 91
Figure 6.2. GDP Growth in Czechia and the EU27. 92
Figure 6.3. Development of Oil and Gas Prices. 94
Figure 6.4. Development of Consumption of Czech Households. 95
Figure 6.5. Development of Savings of Czech Households and Average Propensity to Save. 96
Figure 6.6. Development of State Budget Deficits in Czechia and EU27. 97
Figure 6.7. Exchange Rate Commitment of CNB 2013–2017. 98
Figure 6.8. Development of Key Interest Rates of CNB, ECB and FED. 99
Chapter 7
Figure 7.1. PIT and CIT as a Ratio of Total Tax Revenue in EU Countries (2020, in %). 105
Figure 7.2. Tax System of Czechia. 112
Figure 7.3. Evolution of the Share of Individual Taxes in Total Tax Revenue 1993–2021 (in %). 113
Figure 7.4. Evolution of GDP and CIT Revenues. 114
Figure 7.5. Evolution of Statutory and Effective CIT Rates in Czechia and Average EU-27 (in %). 116
Figure 7.6. Evolution of Taxes on the Income and Profits of Corporations Including Holding Gains as Percentage of Total Taxation in Czechia and EU27 Average (in %). 116
Figure 7.7. Evolution of the Main Components of Tax Revenue in Czechia and in the EU27 in 2004–2021 (% of GDP). 117
Chapter 9
Figure 9.1. GGE Average (2000–2001) and in 2021 (in % GDP). 142
Figure 9.2. Development of Main Categories of GGE (EU Average, in % GDP). 143
Figure 9.3. Changes in Structure of COFOG Expenditure. 145
Figure 9.4. Real GDP Growth and GGE (in % GDP). 146
Figure 9.5. Cyclically Adjusted GGE and Real GDP Growth. 147
Chapter 10
Figure 10.1. Inflation Expectations of Financial Analysts and Company Managers in Czechia (2000/Q1–2022/Q4, in %). 156
Figure 10.2. Inflation Expectations Gap by Economic Entity Type. 158
Figure 10.3. Inflation Expectations Target Gap by Economic Entity Type. 159
Figure 10.4. Comparison of Inflation to Inflation Expectations (%). 161
Chapter 11
Figure 11.1. Share of Owner-Occupied Dwellings and Its Relationship to GDP Per Capita in European Countries. 175
Figure 11.2. Gaps in Housing Price Growth. 176
Chapter 12
Figure 12.1. Trends in Strictness of Employment Protection – Individual and Collective Dismissals. 185
Figure 12.2. Ratio of Minimum to Median Wage (2000–2021). 187
Figure 12.3. Average Tax Wedge Decomposition (% of Labour Costs). 191
Figure 12.4. Expenditures on Active Labour Market Policy (% of GDP). 194
Figure 12.5. Beveridge Curve in Czechia (2008–2022). 195
Figure 12.6. Beveridge Curve in EU Countries (2008–2022). 196
Chapter 14
Figure 14.1. Aggregate WGI Index in EU Countries. 221
Figure 14.2. Aggregate WGI Index (1998–2021). 222
Figure 14.3. Czechia CPI and CC 1998–2022. 227
Chapter 15
Figure 15.1. Czech Household Loans and the Share of Outstanding Loans. 234
Figure 15.2. Growth of Mortgages and Housing Prices in Czechia. 235
Figure 15.3. Changes in Employment and Productivity in Tradable and Non-tradable Industries. 237
Figure 15.4. Czech Public Indebtedness in the European Context. 239
Figure 15.5. Schedules of the Effects of Sectoral Indebtedness on GDP Growth. 246
Chapter 17
Figure 17.1. ICT Use in Czechia. 270
Figure 17.2. Indicators of ICT Sector Development. 270
Figure 17.3. Labour and Total Factor Productivity. 271
Figure 17.4. Total Unemployment in Czechia. 272
Figure 17.5. Changes in Employment Shares of Occupations. 273
Figure 17.6. The Changing Shares of Earnings. 273
Chapter 18
Figure 18.1. Development of Exports, Imports and Foreign Trade Balance of Czechia Between 2012 and 2021 (in Thousands CZK). 283
Figure 18.2. Territorial Structure of Exports of Czechia in 2021 (Smaller on the Left) and the Share of European Countries in Exports of Czechia (Map). 284
Figure 18.3. Expected Impact of Profitability on the Macroeconomic Export on GDP. 290
Figure 18.4. Profitability Distribution Against Median Values Before the Pandemic COVID-19. 291
Figure 18.5. Profitability Distribution Against Median Values During the Pandemic COVID-19. 292
Chapter 19
Figure 19.1. The Structure of the Working Capital of Companies in Selected Sectors From 2012 to 2021. 306
Figure 19.2. Development of the Working Capital Investment Policy of Companies in Selected Sectors From 2012 to 2021. 308
Figure 19.3. Development of the Working Capital Financing Policy of Companies in Selected Sectors From 2012 to 2021. 309
Figure 19.4. The Influence of the Working Capital Financing Policy on the Profitability of Companies in Selected Sectors From 2012 to 2021. 310
Figure 19.5. The Influence of the Working Capital Investment Policy on the Profitability of Companies in Selected Sectors From 2012 to 2021. 311

About the Editors

Daniel Stavárek is a Professor and Head of the Department of Finance and Accounting at the Silesian University in Opava, School of Business Administration in Karviná. His research interest focuses on international finance and banking with a strong emphasis on the process of convergence and European monetary integration. Daniel has published extensively in scholarly journals and authored and edited several books published by renowned international publishers. He currently serves as the Vice Rector for Science and International Relations of the Silesian University in Opava.

Michal Tvrdoň is an Associate Professor at the Department of Economics and Public Administration at the Silesian University in Opava, School of Business Administration in Karviná. As a macroeconomist, his main research fields are related to business cycles, economic integration processes and the labour market. Michal participated in several international and domestic research projects focused on macroeconomic and labour market performance in the countries of the European Union.

About the Contributors

Liběna Černohorská is an Associate Professor at Faculty of Economics and Administration, University of Pardubice, Czechia. She has written book about banking and two chapters in books related to public–private cooperation and is co-author of two chapters in books Credit Risk and Financial Crises a Systematic Risk in Post-Crisis Financial Markets. Her research mainly deals with various issues of banking.

Jan Černohorský is an Associate Professor at Faculty of Economics and Administration, University of Pardubice, Czechia. He has written the book Finance – From Theory to Reality, two chapters in books related to public–private cooperation and co-authored the book Fundamentals of Finance (all in Czech) and two chapters in book Credit Risk and Financial Crises. His research interests focus on macroeconomics and banking.

Petr David is a Professor at the Department of Accounting and Taxes, Faculty of Business and Economics, Mendel University in Brno, Czechia. For many years, he has systematically been working on the issues of externalities, road transport and the related tax policies. He has carried out research projects in this field and cooperated with public sector institutions.

Aleš Franc is an Assistant Professor at Department of Economics, Faculty of Business and Economics, Mendel University in Brno, Czechia. In his publication activities, Aleš focuses on labour market and particularly on labour market institutions, structural changes of employment, the impact of infrastructure on unemployment.

Tomáš Heryán is an Assistant Professor at the School of Business Administration in Karvina, Silesian University in Opava, Czechia. She has authored or co-authored numerous papers published in reputable scientific journals, focusing his research on corporate finance, financial markets and monetary policy. He holds certificates from attending several courses on applied statistics using STATA software by Timberlake, London. Hence, as a statistician, he has also participated in medicinal research.

Roman Hlawiczka is an Assistant Professor at the Department of Finance and Accounting at Silesian University in Opava, School of Business Administration in Karviná, Czechia. He has nearly 30 years of experience in management positions in retail banking with a focus on the small and medium-sized enterprise (SME) and entrepreneur sectors. His research interests have focused on the SME sector. His area of expertise is in the banking sector.

Ladislava Issever Grochová is a Researcher and Instructor in the field of economics at Mendel University in Brno, Czechia. She specializes in environmental economics, macroeconomic and environmental policies, with a focus on the interplay between the economy and the environment addressing institutional context, and productivity and efficiency analysis. She actively involves in a number of international research projects; the outputs being published in scientific journals indexed by the Web of Science and Scopus.

Jana Janoušková is an Associate Professor at the School of Business Administration in Karvina, Silesian University in Opava, Czechia. She has authored or co-authored numerous papers published in reputable scientific journals, focusing her research on taxes, tax policy and international tax harmonization.

Vojtěch Koňařík is a doctoral student at the VSB-Technical University in Ostrava, Czechia. His focus includes behavioural economics, altruism and philosophy in economics.

Tetiana Konieva is an Assistant Professor at the School of Business Administration in Karvina, Silesian University in Opava, Czechia. She has authored and co-authored several journal articles focused on financing management and corporate finance. Her research activities analyse various aspects of financing policy and cost management.

Ivana Koštuříková is an Assistant Professor at the School of Business Administration in Karvina, Silesian University in Opava, Czechia. Her previous publications in journals focused mainly on various issues of accounting and accounting education. She is currently engaged in research in the field of working capital management.

Eva Kotlánová is an Assistant Professor at the Silesian University in Opava, School of Business Administration in Karviná, Czechia. She is a member of Department of Economics and Public Administration. She focuses on economic policy, institutional environment, corruption and its impact on macroeconomic environment and variables.

Radmila Krkošková is an Assistant Professor at the Department of Informatics and Mathematics at the Silesian University in Opava, School of Business Administration in Karvina, Czechia. She successfully completed her doctoral studies in Applied Mathematics at the University of Ostrava, Faculty of Science. Her scientific research is focused on econometric analysis and analysis of time series.

Zuzana Kučerová is an Associate Professor at the VSB-Technical University in Ostrava and Mendel University in Brno, Czechia. Her research interests include monetary theory and policy, crowdfunding, exchange rates, monetary and financial integration, economic policy and cryptocurrencies.

Marek Litzman is an Assistant Professor at Department of Economics, Faculty of Business and Economics, Mendel University in Brno, Czechia. The main interest of his research is in the impact of formal institutional environment on macroeconomic indicators. He also participated in research in the field of the introduction of EU's Common Consolidated Corporate Tax Base and estimation of its impacts on state budgets.

Aleš Melecký is an Associate Professor and Senior Researcher at the Department of Economics, VSB-Technical University of Ostrava, Czechia. He was Head of the Department of Economics at VSB-TUO during the period 2016–2020. His research topics include macroeconomic modelling, credit risk modelling, government debt management and quantitative literature review.

Radek Náplava is an Assistant Professor at the Department of Economics of Mendel University in Brno in Czechia. His research and publications focus primarily on structural changes in the European labour markets and its socio-economic consequences.

Dennis Nchor received his PhD in Economics and Management in 2016 from Mendel University in Brno, Czechia. He joined the research team of the Department of Economics, Faculty of Business and Economics and has been instrumental in organizing research activities and publishing their outcomes. He has been involved in many collaborative research projects that are financed by renown institutions such as the Internal Grant Agency, European Union and Civil Society Institutions. Dennis is author and co-author of 25 journal papers and conference proceedings that are indexed by the Web of Science and Scopus.

Jan Nevima is an Associate Professor in the field of International Trade and a doctor in the field of Economics at the School of Business Administration in Karvina, Silesian University in Opava, Czechia. His research interest is in econometric and statistical analysis for assessment of competitiveness and convergence. He deals with the issue of smart cities and brownfields.

Daniel Pakši is a doctoral student at the VSB-Technical University in Ostrava, Czechia. His research interests include monetary economics, inflation expectations, housing prices, migration and social exclusion.

Iveta Palečková is an Associate Professor at the Department of Finance and Accounting at Silesian University in Opava, School of Business Administration in Karviná, Czechia. She is the author and co-author of several publications in scientific journals on the stability, performance, efficiency and competition in the banking sector. She was a member of the research team of the projects funded by the Czech Science Foundation.

Lenka Přečková is an Assistant Professor at the Department of Finance and Accounting at Silesian University in Opava, School of Business Administration in Karviná, Czechia. She has authored or co-authored several publications in scientific journals on financial stability, performance and development of the insurance market. She was a member of the research team of the projects funded by the Czech Science Foundation.

Petr Rozmahel is an Associate Professor in the Department of Economics, Faculty of Business and Economics, Mendel University in Brno, Czechia. Previously, he also led the Research Center of Mendel University. As a macroeconomist, his main research fields are related to business cycles, economic and monetary integration processes and macroeconomic policy. Petr led and participated in many international research projects focused, for example, on the adoption of the euro in Czechia and other Central and Eastern European countries and on processes of macroeconomic convergence in Europe.

Petra Růčková is an Associate Professor at the School of Business Administration in Karvina, Silesian University in Opava, Czechia. She has authored or co-authored numerous papers published in reputable scientific journals, focusing her research on corporate finance, financial analysis and capital structure. Petra is a member of the Academic council of School of Business Administration in Karviná and she is also a member of the editorial board of Acta academica Karviniensia.

Jiří Rusnok is a Czech Politician and Economist who served as the Prime Minister of the Czech Republic between June 2013 and January 2014. From 2016 to 2022 he served as the governor of the Czech National Bank. During his time at the helm of the central bank, he received the international awards Central Bank Governor for Central and Eastern Europe 2017 and Central Bank Governor in Europe 2018. He advocated transparent central bank communication, for which the CNB under his leadership was awarded the international Central Banking Transparency Award 2022.

Jana Šimáková is an Assistant Professor at the School of Business Administration in Karvina, Silesian University in Opava, Czechia. She has authored or co-authored numerous papers published in reputable scientific journals, focusing her research on exchange rates, foreign trade and international financial management. Jana also lends her expertise as a member of the control and advisory body in the multifunctional coworking center for business support known as Business Gate. Currently, she holds the role of Vice Dean for international relations.

Michal Škára completed his master's degree at Mendel University. Since then, he has been working at the Financial Market Supervision Department II of the Czech National Bank where he contributed to the development and implementation of the reporting framework for financial services intermediaries.

Markéta Skupieňová is an Assistant Professor at the School of Business Administration in Karvina, Silesian University in Opava, Czechia. She has authored and co-authored several journal articles focused on managerial and cost accounting. Her current research interests include decision-making processes based on outputs of managerial accounting.

Šárka Sobotovičová is an Assistant Professor at the School of Business Administration in Karvina, Silesian University in Opava, Czechia. She regularly publishes papers in scholarly journals with interest in direct and indirect taxes, national and international tax policy.

Irena Szarowská is an Assistant Professor at the Department of Finance and Accounting of the Silesian University in Opava, School of Business Administration in Karvina, Czechia. She is the author of many articles published in scientific journals included in the Web of Science and Scopus databases. Her scientific interests refer to the field of public finance and fiscal policy as well as municipal and regional finance.

Zuzana Szkorupová is an Assistant Professor at the Department of Finance and Accounting of the Silesian University in Opava, School of Business Administration in Karvina, Czechia. Her research is focused on foreign direct investment and monetary policy.

Petr Teplý is a Professor at Prague University of Economics and Business, Czechia. He has written or co-authored 10 books in the field of banking and finance. His top publications include a Czech-English Bilingual Book Banking in Theory and Practice, Consumer Lending in Theory and Practice and Financial Disintermediation: The Case of Peer to Peer Lending. His research focuses mainly on the area of banking and financial services.

Foreword

Czechia is a medium-sized country in the middle of Europe. Next year, together with the other new EU Member States, we will mark the 20th anniversary of our accession to the European Union. In 2021, Czechia reached 91% of the EU27 average, measured by GDP per capita in purchasing power parity standards. While this level is higher than Portugal or Spain (75% and 84%, respectively) and close to Italy (95%), Czechia has been growing at the slowest average rate in recent years in almost the entire EU and by far the slowest in the group of Central and Eastern European countries. Between 2005 and 2021, this indicator increased by 63% in Czechia, while it increased by 119% in Poland, 75% in Hungary and 65% in Slovakia. Most recently, between 2021 and 2019, the growth gap is even more pronounced with Czechia +1%, Poland +10%, Hungary +7% and Slovakia +2%. During this period a number of developed Member States (e.g. all Nordic countries, Benelux, Germany, France, Ireland) also grew faster than Czechia.

It is therefore clear that economic convergence towards more advanced countries has stalled. And the Czech economy is losing its ability to catch up, let alone overtake more advanced economies. The medium-term perspective is burdened with a number of complex challenges. Therefore, we must think hard about what the future of the Czech Republic in general and its economy in particular should look like.

This book undeniably comes at the right time and provides us with a lot of inspiration for this thinking. The right therapy in medicine as well as in economic policy cannot be established without a good diagnosis, i.e. an analysis of the state of affairs and the previous developments that have brought us to our current state. In this methodologically correct approach, I find the greatest contribution of this publication. This book provides a professional analysis of many key areas of the economy and the economic policy applied in recent years, using the example of a medium-sized and medium-developed open economy such as Czechia.

The existing model of the Czech economy has been largely based on massive inflows of foreign investment since the second half of the 1990s, which continued de facto throughout the first decade of the current century. This capital has been directed mainly towards industrial capacities, often linked to automobile production. In addition to a long industrial tradition, targeted government support, a favourable geographical location and a well-equipped infrastructure, these investments also found a cheap and high-quality workforce in Czechia.

However, over the last 5–7 years, the situation in Czechia, as well as worldwide, has changed dramatically. The COVID-19 pandemic and the subsequent disruption of global value chains, as well as the ongoing European energy crisis and Russia's subsequent aggression in Ukraine, symbolise the end of the ‘golden’ era of globalisation that has shaped world development for the last 30 years.

Labour has long been a scarce commodity in Czechia. We have had the lowest unemployment rate in the EU for a long time, and similarly, the employment rate exceeds 80% and is also well above-average EU standards. The share of foreigners in the labour market is around 15%. The Czech economy is highly energy intensive. Too many companies operate in a subcontracting position so that they do not have the full opportunity to exploit the added value from, for example, research and development and from the sale of their own products. These are perhaps the key structural problems of the Czech economy.

In a certain sense, the Czech economy is facing the challenge of overcoming the so-called middle income trap. That is to say, finding a way to move from the level of a medium-developed EU country to the desirable position of approaching the above-average developed countries. I believe that whether we succeed or not will be determined by how successful Czech society is in making a fundamental qualitative shift in the key areas of our country's governance, which are institutions, innovation and infrastructure.

Economic policy in the narrow sense cannot deliver these priorities. However, its successful management, which in the end means, above all, maintaining the overall macroeconomic balance, is a necessary condition for any positive shift in these priorities. Finding the appropriate monetary and fiscal policy settings appears to be the biggest challenge for the period ahead. This will lead to a sustainable restoration of price and fiscal balance while maintaining adequate growth potential of the Czech economy.

Jiří Rusnok

Governor of Czech National Bank (2016–2022)

Prime Minister of Czechia (2013–2014)

Acknowledgment

Publication of this book was supported by the Ministry of Education, Youth and Sports of the Czech Republic within the Institutional Support for Long-term Development of a Research Organization in 2023.

Prelims
Chapter 1 The Czech Economy in the Last Decade: Determinants and Obstacles to Economic Growth
Chapter 2 Nominal and Real Convergence of Czechia With the Euro Area
Chapter 3 International Trade and the Competitiveness of Czechia as the Fundamental Determinants of Economic Growth
Chapter 4 The Role of Exchange Rate in Contemporary Czechia’s Foreign Trade
Chapter 5 Exchange Rate Commitment of the Czech National Bank
Chapter 6 Dilemma of the Czech National Bank: Factors of Adverse Macroeconomic Development in Czechia
Chapter 7 Corporate Taxation in Czechia: A Proper Tax Mix Stimulating Economic Growth
Chapter 8 Tax Policy to Internalize Road Transport Externalities
Chapter 9 Relationship Between General Government Expenditure and Economic Growth in Czechia
Chapter 10 Inflation Expectations in Czechia: Measurement and Determinants
Chapter 11 Regional Housing Prices in Czechia: Dynamics, Co-Movements and Drivers
Chapter 12 Efficiency of the Czech Labour Market: Do Institutions Matter?
Chapter 13 Polarisation of Employment in Czechia and Neighbouring Countries
Chapter 14 Institutional Environment, Corruption and Their Impact on Economic Growth
Chapter 15 Sectoral Indebtedness and Its Influence on Output of the Czech Economy
Chapter 16 The Contribution of Financial Institutions to Economic Growth
Chapter 17 The Information and Communication Technology Sector in Czechia and Its Contribution to Innovation and Economic Growth
Chapter 18 The Effects of the COVID-19 Pandemic on the Microeconomic Development of Czech Exports
Chapter 19 Impact of Working Capital Management of Czech Companies on Their Performance
Index
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