Report1999

Intra-Industry Trade, Foreign Direct Investment, and the Reorientation of Eastern European Exports

84 citations0/0 files storedWorld Bank policy research working paper

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Global trade and economics Post-Communist Economic and Political Transition Global Trade and Competitiveness

Abstract

In the first half of the 1990s exports to Organization for Economic Cooperation and Development (OECD) countries from many Central and Eastern European countries grew rapidly. The authors explore the extent that export growth reflects economic restructuring and changes in trade composition as opposed to redirection of traditional Council of Mutual Economic Assistance (CMEA) exports to the West. They also investigate vertical intra-industry exchanges role in trade expansion with Western Europe. They find a strong relationship between export performance and growth in vertical intra-industry trade with the European Union (EU). The Czech and Slovak Republics, Hungary, Poland, and Slovenia all rely heavily on the EU for inputs. As their per capita exports to the EU have grown the fastest, this appears to be a successful transition characteristic. The Czech and Slovak Republics registered the highest export growth and the greatest trade pattern reorientation. They have the highest intra-industry trade growth level and rate with the EU, but have undergone the least change in export composition. But substantial changes have occurred in the export composition within traditional export categories. This suggests that Czech and Slovak firms pursueda strategy of upgrading and differentiating traditional exports, relying on EU firms for new machinery, components, and know-how. Simple redirection of goods that were traditionally exported to CMEA markets does not appear to have played an important role in the growth of exports to Western Europe. Export growth is in products that were not exported to the CMEA or in traditional export items that have been substantially upgraded or differentiated. Foreign direct investment inflows correlate highly with intra-industry trade levels. But, excluding the automobile sector, foreign direct investment seems unlikely to have been a major force driving intra-industry trade growth. These exchanges and the underlying integration in the world economy mostly reflect arm's length transactions between Central and Eastern European firms and their European counterparts.

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References

1995Economic Reform and the Process of Global Integration 1986Market Structure and Foreign Trade 1987Imperfect competition and international trade: Evidence from fourteen industrial countries 2011Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?1995Monopolistic Competition and International Trade: Reconsidering the Evidence 1995Economic Reform and the Progress of Global Integration 1990The significance of theory

Cited by

1997Determinants of the Export Structure of Countries in Central and Eastern Europe 2000The Determinants and Impact of Foreign Direct Investment in Central and Eastern Europe: A comparison of survey and econometric evidence.2001Trade and Production Fragmentation: Central European Economies in European Union Networks of Production and Marketing 2003Intra-industry trade of transition countries: trends and determinants 1999Central and Eastern European Countries in the International Division of Labour in Europe 2001How Accession to the European Union Has Affected External Trade and Foreign Direct Investment in Central European Economies

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