Diverging Paths: Why the V4 Competitiveness Model Is Diverging

The Visegrád Four entered the European Union in 2004 with broadly comparable economic strategies. They attracted foreign capital and offered a skilled, cost-competitive workforce. Yet each country adapted its model to its own. Producing distinct approaches for example to managing flagship firms, downturns, and emerging industries. Two decades later, the outcomes are diverging measurably, with Poland pulling ahead while its neighbours face a slowdown that may define their economic trajectories for years to come.

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On the main indicators, the initial convergence model performed remarkably well. According to Eurostat’s preliminary estimates for 2024, GDP per capita in PPS reached 92% of the EU average in the Czech Republic, 81% in Poland, 76% in Hungary, and 75% in Slovakia.

The strategy rested on the same pillars everywhere: foreign direct investment (mainly from Germany) as the primary growth engine, deep integration into Western European value chains through exports, and a workforce that combined technical skills with relatively moderate labour costs by EU standards. Yet the same starting conditions have produced increasingly different results, and the reasons are rooted in structural factors that predate EU accession and, in several cases, the socialist period itself. Some economies appear to be drifting toward the middle-income trap, while others retain the institutional momentum to avoid it.

Poland

Poland’s economic outperformance among the V4 rests on several structural advantages that its neighbours cannot easily replicate. The first is market size. With roughly 38 million consumers, Polish firms can achieve significant scale domestically before ever crossing a border. The second advantage is historical: Poland uniquely preserved private agricultural ownership throughout the socialist period, which is widely argued to have sustained an entrepreneurial culture through four decades of central planning. In the post-1990 transition, this contributed to the relatively rapid emergence of a domestic capitalist class built on market competition rather than predominantly on political connections. The result is visible today in Poland’s more diversified enterprise base and its growing presence in sectors from technology to specialised manufacturing.

A third advantage, more recent in origin, is Poland’s positioning within the post-2022 nearshoring wave. As Western European firms reassess Asian supply-chain exposure, Poland has emerged as one of the principal European beneficiaries of the relocation of production and services closer to end markets.

A fourth advantage lies in the absorption of EU funds: Poland has consistently ranked among the largest net beneficiaries of cohesion policy and is currently the largest single recipient of the Recovery and Resilience Facility, with allocations supporting infrastructure, the green transition, and digitalisation.

Poland has also moved decisively into knowledge-intensive services according to the ABSL Report . The business services sector now employs close to 490,000 people across more than 2,000 centres, with knowledge-based service exports reaching approximately USD 42 billion in 2024. Germany, the United States, the United Kingdom, the Netherlands and Switzerland each import services worth over USD 2 billion annually from Poland, signalling a transition from a cost-arbitrage destination toward a strategic delivery hub.

Alongside this services expansion, Poland has continued to attract high-value FDI from firms such as Google, Microsoft, Amazon and Dropbox, while domestic champions such as Orlen, Allegro and Mokate have scaled to regional significance. On the basis of these structural factors, Poland appears better positioned than its V4 peers to mitigate middle-income-trap dynamics if the trajectory remains conditional on sustained institutional capacity, demographic stabilisation, and the continued absorption of EU funds.

Czechia

Czechia remains the most developed V4 economy by per capita output Eurostat’s preliminary 2024 data place it at 81% of the EU average in PPS terms reflecting an industrial heritage that predates the socialist period. However, this very strength is increasingly becoming a source of risk. Czechia is the most deeply embedded of the V4 economies in the German industrial supply chain, and as Germany undergoes a structural adjustment driven by high energy costs, the electric-vehicle transition, and lagging digitalisation, Prague is feeling the spillover effects. Czech exporters’ market share in Germany declined between 2016 and 2021, while Polish firms expanded theirs significantly over the post-transition period.

The problem is compounded by signs of innovation stagnation. Czechia’s R&D intensity has plateaued in recent years, and the country remains classified as a “Moderate Innovator” in the European Innovation Scoreboard, well behind the EU innovation leaders. The economy continues to specialise in mid-tech manufacturing segments for example particularly automotive components and machinery that were established during the socialist era and reinforced during the early FDI phase, while diversification into high-value services and frontier technologies has been comparatively slow. Defence industry exports represent a notable exception, where Czechia has built capabilities punching above its economic weight, but the broader growth outlook remains uncertain.

Hungary

Hungary occupies the V4 middle ground in development terms, with GDP per capita at approximately 76% of the EU average in 2024 according to Eurostat’s preliminary estimates. It was an early mover in attracting Western automotive investment, successfully drawing Audi, Mercedes, Suzuki, and more recently BMW and Chinese EV-related investment.

Yet this integration came at a cost. The privatisation process of the 1990s, as documented in the comparative transition literature, allocated significant assets through channels that favoured politically connected domestic actors and foreign strategic buyers, rather than fostering a broad-based entrepreneurial class. The consequence is a persistent underrepresentation of internationally competitive domestic firms outside a few large incumbents such as Richert, Mol, MVM. While legacy companies such as OTP and MOL have achieved regional significance, comparable national champions have not emerged in technology or digital sectors. Hungary’s open economy and small domestic market amplify its exposure to external shocks, particularly to fluctuations in German industrial output and to volatility in European energy markets.

Slovakia

Slovakia’s trajectory is the most volatile of the four. After a slow start in the 1990s, it delivered impressive growth in the 2000s, partly supported by eurozone accession in 2009, which removed currency risk and arguably strengthened investor confidence but the net economic benefits of euro adoption remain debated in the academic literature. The automotive sector became the dominant growth engine, with Volkswagen, Kia, Peugeot, and Jaguar Land Rover establishing major production facilities, making Slovakia the largest per-capita car producer in the world. However, this extreme specialisation carries significant vulnerability. According to the World Bank Slovakia’s exports-to-GDP ratio is among the highest in the EU at roughly 90%, making the economy acutely sensitive to shifts in global automotive demand, including the transition to electric vehicles and the realignment of European supply chains. Growth momentum slowed notably in the 2010s, and the structural conditions for a renewed acceleration are not yet clearly in place. The “Tatra Tiger” narrative of the 2000s has been replaced by an extended period of below-potential growth. The Bratislava region remains among the wealthier regions of the EU, but regional convergence within Slovakia itself has been limited.

Regional Outlook

The divergence within the V4 reflects a fundamental tension in the Central European growth model. The countries that successfully manage the transition toward innovation-driven growth, domestic enterprise development, and reduced dependence on a single export market are likely to sustain their trajectories and move upward along the value chain capturing higher-margin activities such as R&D, design, and branding rather than remaining concentrated in mid-stream assembly and manufacturing. This upward movement along the value chain is what the development economics literature describes as the “smile curve,” and it is widely identified as a key mechanism for escaping the middle-income trap. Poland’s advantages in scale, entrepreneurial depth, services upgrading, and EU-funds absorption position it best for this shift. For the others, the challenge is sharper, building economic autonomy within structures that were designed around dependency.

About Author:

Márton Németh (Visiting Fellow) is pursuing a Master’s degree in International Security and Defense Policy at the Faculty of Military Science and Officer Training of the National University of Public Service, and he obtained his Bachelor’s degree in International Studies at the University of Pécs, Faculty of Humanities. As a reservist, he served with the rank of Corporal, gaining experience in teamwork, discipline, and decision-making under crisis situations. He currently works as a junior analyst at the Migration Research Institute, focusing on migration, demographic trends, and the political dynamics of the Middle East.

The opinion expressed in the article represents the author’s private views, which are an integral part of their individual position.

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