Poland Needs to Invest in Firm Productivity to Spur Economic Growth

In the last thirty years, Poland was one of the fastest-growing economies in the world. To continue to catch up with the advanced economies of Western Europe, the country should support firm productivity improvements through relevant public instruments, including those targeted at small and medium-sized enterprises, according to a new World Bank report. The report was developed in partnership with Statistics Poland, which prepared the data and collaborated with the World Bank team on econometric calculations and analyses (conclusions and recommendations related to the public policy expressed in the report belong to the World Bank).

Over the last three decades, Poland’s GDP tripled in size, and in 2009 the country achieved high-income status, according to World Bank methodology. Still, with a per capita income at two-thirds of the per capita figure in the ‘old European Union’ member states, Poland has yet to catch up with the countries of western Europe.

The gap is visible at the individual firm level, too. For instance, an average industrial firm in Poland needs three times more staff than its German counterpart to produce the same product. In addition, the World Bank report reveals that the total factor productivity (TFP) growth in the manufacturing sector in Poland has stagnated since 2012, and the expansion of the manufacturing industry has come predominantly from increasing capital intensity.

“Despite the turbulence in the world economy caused by the 2008-2009 financial crisis and the COVID-19 pandemic, Poland’s dynamic yet steady development serves as a model of economic success,” says Marcus Heinz, Resident Representative of the World Bank in Poland and the Baltic States. “The country still faces significant challenges, such as addressing low investment levels and the challenge of an aging society. This report highlights that one way to keep the development dynamics is to invest in firm productivity and it presents recommendations in this regard”.

To begin with, strengthening managerial skills and workforce skills, providing business advisory services, and facilitating entrepreneurial networks and clusters could help improve Poland’s performance on key innovation and digital economy indicators. Currently, Poland is ranked 23rd in the European Union’s Digital Economy and Society Index and 24th on the Innovation Scoreboard. World Bank research shows that about fifty percent of firms in Poland are yet to start using the most basic management tools.

Secondly, given that small and medium-sized enterprises are the engines of productivity growth in Poland, they should be supported with public policies that eliminate barriers, including regulatory and financial barriers to market entry and competition. Moreover, policy interventions need to address potential barriers to SMEs adopting digital technology. According to World Bank research findings, nearly half of the firms in Poland declare they do not need to invest in digitization.

Thirdly, country economic policy should focus on supporting exports and linking Polish companies to global supply chains. This can be facilitated with such measures as foreign trade promotion and investments in reducing the cost of the export activity (e.g., streamlined certification policy), as well as awareness building in the business community.

The World Bank has supported Polish institutions in their efforts to improve economic competitiveness and productivity, including at the local level. For example, World Bank’s expertise and recommendations were instrumental in the establishment of Podkarpackie Innovation Center in Rzeszów, with the mission to help bridge the gap between science and business communities in research, development, and innovation.

The report, which was published today titled “Paths of Productivity Growth in Poland: A Firm Level Perspective”, was carried out with funding by the European Union via the Structural Reform Support Programme and with the support and the partnership of the European Commission’s DG REFORM.