A Modern Industrial Policy for the Czech Republic: Optimizing the Structure of Production

Abstract

The decreased demand for new vehicles will put pressure on the economy of the Czech Republic, a country deeply integrated into global value chains, as part of global vehicle production. The aim of this research was to define an appropriate industrial policy for the Czech Republic that will ensure that the country maintains its competitive position in the global market. A constrained optimization model was built, based on input–output analysis, to determine the optimal value-added structure and the intersectoral structure of the Czech economy for the country to retain its exporting character. The optimization problem was solved by using a particle swarm optimization algorithm. The results suggest that the optimal industrial policy plan for the country is the structural transformation of production, mainly targeting the development of technologically advanced sectors of manufacturing (such as: chemicals and chemical products; basic pharmaceutical products; computer, electronic, and optical products; electrical equipment; and machinery and equipment). The suggested restructuring process increased the domestic value-added in gross exports as a share of total exports by 6.77%, creating optimal production capabilities for the economy. The Czech Republic appears to have the potential for the implementation of an industrial policy, avoiding the increasingly vulnerable motor-vehicle sector.