Central European Business Review 2022, 11(2):1-17 | DOI: 10.18267/j.cebr.285

The Reliance of the Czech Economy on Its Automotive Sector

David Mareš ORCID...¹, Martin Janíčko ORCID...²

¹ University of Finance and Administration, Faculty of Economic Studies, Department of Finance, Prague, Czech Republic, david.mares@volny.cz

² Prague University of Economics and Business, Faculty of Economics, Department of Economics, Prague, Czech Republic, janicko@mnd.cz

This paper explores the relationship between the performance of the Czech automotive industry and the performance of the Czech macroeconomy with an objective to fill in some existing gaps in the research on this topic. An overreliance on one sector could have harmful consequences for the competitiveness of the entire economy but sometimes also for the sector itself, particularly in the long run. We test several hypotheses in this context using two frameworks: a vector autoregression model with exogenous drivers and a vector error correction model, both built on quarterly time series data in the period ranging from 2000 to 2017 and validated out-of-sample on the 2018 and 2019 data. The results suggest that the macroeconomy appears to some extent forecastable by the performance of its automotive sector. This is further supported by the fact that the forecasting performance of the selected models looks reasonable. Likewise, the results show that the key variables proxying the performance of the automotive industry tend to converge to a long-run equilibrium or at least exhibit a long-run relationship with and/or vis-à-vis the selected macroeconomic indicators. This finding is in line with the fact that the automotive sector has an important position in the Czech economy also from a longer-term perspective. Yet, we have not found that the macroeconomy would be overreliant on automotives in general terms.
Implications for Central European audience: The text brings potential value for the Central European audience by drawing attention to the palpating discussion among policymakers, scientists, and the media about the reliance of the macroeconomy on the automotive sector. Hence, it suggests how independent individual economic policies may ultimately be, also depending on the share of the automotive industry on total output. It is also useful for the top management of the firms in the large automotive firms, be it producers or suppliers, as they may observe how the interconnections with the outer economy might look like. Likewise, for the banking sector, the paper disentangles potential issues with concentration risk and conveys information about industry-specific lending. Finally, the paper provides the Central European readers with information about how the linkages in the automotive industry can be viewed as a whole.

Keywords: automotive industry; macroeconomic performance; equilibrium

JEL classification: C3, E17, L62

Received: March 11, 2021; Revised: May 17, 2021; Accepted: June 6, 2021; Prepublished online: September 12, 2021; Published: May 19, 2022  Show citation