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Development of Czech economy

 
photo:  (sxc.hu)
 

The area of today’s Czech Republic used to be an industrial centre of the Austro-Hungarian Empire and one of the most economically developed regions in Europe at the beginning of the last century. After Czechoslovakia, an independent state of Czechs and Slovaks, was established in 1918, the country’s economy was among the 10 most advanced economies in the world in only 20 years of the state’s existence. Czechoslovakia was one of the world’s leading countries in the textile, glass and shoe industries. The mechanical engineering, electro-technical and energetic industries were developing rapidly as well.

 
 
After the Second World War, major changes were made in the Czechoslovakian economy, resulting from big social changes and the consequent establishment of socialism. All economic objects were nationalised. Agriculture was collectivised by force and collective farms were founded. The state’s economy became centralised and it was operated according to the national economic plan. The basic economic rule was to follow the so-called five-year plan, which determined the coming Czech economic years. The Czechoslovakian economy began to orientate towards the East and heavy industry, which required a lot of raw materials and energy. Specialisation in heavy industry resulted in extensive ecological damage throughout the country.

After the fall of the Communists in 1989, Czechoslovakia returned to the path leading to market economy. However, many mistakes were made in the course of replacing the centrally-planned economy with a market economy, and the whole transformation was rather complicated. With the disintegration of the Soviet Bloc, the countries that used to orientate their economies towards the eastern market, and especially the USSR, lost the market for their engineering products. This led to a major decrease in demand for products of the armament and heavy industry, as well as brown and black coal. The result was an extremely high unemployment rate in some regions, especially in northern Bohemia and Moravia. Due to structural changes in Czechoslovakian industry, the economic transformation was also a stepping stone of the country’s evolution in international trade. The Czechoslovakian economy ceased to look up towards the markets of the former Eastern Bloc and began searching new business partners among the world’s most developed economies.

As the result of serious economic and social changes, Czechoslovakia was split into two independent states at the end of 1992 - the Czech Republic and the Slovak Republic. From 1 January 1993, Czech economy had to function separately and keep pace with the changes happening in world markets as well as changes connected with the disintegration of the Czechoslovakian Republic. 

The newly established Czech Republic continued their economic transformation in the form of privatisation, which proved to be very complicated, with various effects on particular sectors of the country. The privatisation consisted of three basic processes, known as the restitution, and small and big coupon privatisation. Some companies were directly sold to foreign investors, such as the Škoda Auto Company. Within the restitution process, companies and land was returned into the hands of the original owners. As for coupon privatisation, state enterprises became joint-stock companies and major parts of them were sold to shareholders. We cannot omit the fact that the coupon privatisation did not create conditions for establishing effective ownership relations. There was no law that would clearly set the ethical boundaries of privatisation, so the Czech economy saw the beginning of a recession in the second half of the 90s. Aiming to stimulate the economy, in the following years the Czech Republic offered significant investment incentives and benefits to foreign investors.

On 1 May 2004, the Czech Republic became a member of the European Union. From the economic point of view, it led to the overall improvement of the position of the Czech Republic on the international market as well as to new possibilities that would strengthen the Czech economy, such as the inflow of foreign investments, access to EU structural funds to develop various fields and regions, or the possibility for Czech citizens to move to other EU member states to work. All limits restricting trade were removed.

Today, the Czech Republic is one of the most developed industrial economies in Central and Eastern Europe. Czech industry is focused on metallurgy, engineering, car industry, electronic industry, chemistry, food and beverages processing, and production of glass, medicaments, textile and paper. Industry makes up 41% of the gross domestic product (GDP).The largest part of the country’s GDP comes from the service sector (55%).

The agricultural sector only contributes 5%, which is quite a low percentage. The main agricultural products include wheat, barley, sugar cane, potatoes, fruit and hops. The most significant farm animals bred in the country are cattle, pigs and fowl.

The most important trade partners of the Czech Republic are Germany (31.9%), Slovakia, Poland, France, Austria, Italy, the Netherlands, Russia, Great Britain, China and the USA.
 
Author: Ivana Jenerálová
 
Added: 14.08.2011
 
 
 

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