In Walter Leal Filho (ed) Supporting the Development of R&D and the Innovation Potential of Post-Socialist Countries, IOS Press, 2004

Introduction So far, growth and recovery of post-socialist countries of central and east Europe (CEE) was based on efficiency gains from reallocations between sectors and firms, and on the firm level productivity improvements. Growth was not based on local R&D and extensive innovation activities. In order to grow further, CEECs will have to accumulate new knowledge and acquire new technology. In the core of this problem is the (mis)match between local demand and supply for technology which we explore in this paper. Economists are usually concerned with the issues of aggregate (mis)match between market demand and supply or supply and demand for products. However, demand and supply for products are not identical to demand and supply for technology (R&D and innovation). Technology is an intermediate input and output in economic process and in an increasingly knowledge intensive economy it has become essential for understanding the growth and its structural problems. In this paper, we explore this issue in the context of the CEECs using primarily statistical data, leaving theoretical issues aside and by developing policy relevant conclusions from data analysis. Our evidence on the gap between demand and supply of R&D and innovation and its determinants is not systematic. Nevertheless, we believe that even with this constraint our analysis contains empirically and policy relevant insights and conclusions. The first part points to the emerging gap between lacking demand for technology and growth. Due to absent demand for technology, there has been sizeable downsizing of R&D in the CEECs. The second part analyses the relationship between R&D and innovation activities as well as the main sources of knowledge for innovation. This points to the (mis)match between current S&T system and changing sources of innovation. Conclusions draw policy implications.