Central Europe’s changing role in European manufacturing: Selective upgrading and rethinking the core–periphery divide

Abstract

Over the last two decades, Central Europe (CE) – comprising Poland, Czechia, Slovakia, Hungary, Romania and Slovenia – has become one of the most important manufacturing regions in the European Union. Existing interpretations have predominantly explained this transformation through concepts such as dependent development, integrated periphery, semi-periphery or factory economy, emphasizing the dominant role of foreign direct investments, external corporate control and integration into transnational production networks. While these perspectives continue to capture important features of the region’s development, they increasingly underestimate the differentiated and evolving nature of CE’s position within a changing European manufacturing system. This paper argues that CE should be viewed not as a static manufacturing periphery but as a region undergoing selective and uneven repositioning within the European division of labour.

The analysis combines Eurostat data, JETRO surveys of Japanese-affiliated firms operating in Europe, and firm-level evidence collected in previous research projects. We propose a distinction between three dimensions of core–periphery relations including market, network and functional perspectives.

The findings demonstrate that CE has substantially strengthened its position within European manufacturing. The region’s share in EU manufacturing output increased significantly, with particularly strong gains in automotive production, electrical equipment, furniture, rubber and plastics, and machinery-related industries. This growth has been driven primarily by productivity improvements and export expansion rather than by employment growth. At the same time, the region displays considerable internal diversity in terms of industrial structure, foreign ownership, innovation capabilities and levels of economic diversification. Evidence from JETRO surveys suggests that CE is increasingly perceived as both a major production platform and an important market, indicating movement towards the European market and network cores. However, progress towards the functional core remains much more limited, as headquarters and high-level R&D functions continue to be concentrated in Western Europe.

The paper identifies a changing set of endogenous and exogenous development determinants. Rising labour costs, demographic constraints, energy security, infrastructure quality, digitalisation, and institutional capacity increasingly shape regional development. Simultaneously, geopolitical restructuring, nearshoring, supply-chain regionalisation, and expanding EU regulatory frameworks are altering the conditions. Particular attention is devoted to two emerging pathways of functional upgrading: Industry 4.0 and defence/dual use industries. Both create opportunities for the development of higher-value functions related to engineering, software, systems integration, automation, and advanced technological capabilities.

Several widely used simplifications are identified and criticised in the paper, including the treatment of Western Europe as a stable benchmark, CE as a homogeneous bloc, automotive assembly as representative of the region’s broader industrial trajectory, and foreign-controlled final production as exhaustive of its developmental path. Ultimately, we argue CE’s trajectory is best understood as one of selective repositioning, rather than simple convergence with the Western European core.