Industrial Restructuring And Trade Reorientation In Eastern Europe

This book examines the reorientation of foreign trade and industrial restructuring in Eastern Europe.

J anos Gaes and Georg Winekler In recognition of the key position of international trade in the transition and the need for concentrated discussions of topical trade issues the International Institute for Applied Systems Analysis (IIASA) organized an international conference on "International Trade and Restructuring in Eastern Europe" which took place in Laxenburg, Austria, on 19 and 21 November 1992. The Austrian National Bank joined IIASA to co-sponsor the event. Participants of the conference were experts of international economics and trade policy from East and West, policy makers, and representatives of international organizations like the IMF, the Commission of the European Communities, the OECD, and the European Bank for Reconstruction and Development (EBRD). The papers prepared for the event and the lively discussions during the conference itself prove that the topics are intellectually challenging and timely for policy makers. It has widely been recognized that international economic relations play a crucial role in the transition of count ries of Central and Eastern Europe. The scope, speed, and success of the efforts to transform the formerly cen trally planned economies to market economies have increasingly become de pendent on the pattern these count ries have in their relation to the rest of the world. Transition comprises three major processes: macro-stabilization, mar ketization, and restructuring. The success of these three hinges to a large extent on the response of these economies to the new conditions set by international trade and exchange regimes.

September 1996 To what extent does growth in exports in Central and Eastern Europe reflect economic restructuring and changes in the composition of trade as opposed to redirection of traditional CMEA exports to the West? In the first half of the 1990s, after the demise of central planning, exports to OECD countries from many Central and Eastern European countries grew rapidly. Hoekman and Djankov explore what trade data suggest about the extent to which growth in exports reflect economic restructuring and changes in the composition of trade as opposed to redirection of traditional CMEA exports to the West. They also investigate the role of vertical intra-industry exchange in the expansion of trade with Western Europe - that is, getting inputs from European Union (EU) suppliers that are then used in the production of goods exported to the EU. They find a strong relationship between export performance and growth in vertical intra-industry trade with the EU. The Czech and Slovak Republics, Hungary, Poland, and Slovenia all rely heavily on the EU for inputs - more so than Austria, Portugal, and Spain, for example. As their per capita exports to the EU have also grown the fastest, this appears to be a characteristic of successful transition. The Czech and Slovak Republics registered the highest growth in exports and the greatest reorientation in the pattern of trade. They have the highest level and rate of growth in intra-industry trade with the EU, but have undergone the least change in composition of exports. But substantial changes have occurred in the composition of exports within traditional export categories. This suggests that Czech and Slovak firms pursued a 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. Inflows of foreign direct investment - limited before 1994 - correlate highly with levels of intra-industry trade. But if large investments in the automobile sector are excluded, foreign direct investment seems unlikely to have been a major force driving the growth of intra-industry trade. These exchanges and the underlying integration into the world economy (Western Europe) mostly reflect arm's-length transactions between Central and Eastern European firms and their European counterparts. This paper - a product of the Private Sector and Finance Team, Europe and Central Asia, and Middle East and North Africa Technical Department - is part of a larger effort in the department to monitor economic developments in Central and Eastern Europe.

With close attention to the history and institutional realities of the region, The Market Meets Its Match explains the failure of the simplistic market medicine administered in the first five years of transition. Merely "getting the prices right"--Lowering wages and raising interest rates and energy prices - won't improve competitiveness, the authors argue, as long as nonlabor costs such as the quality of goods, product design, outmoded technology, and inefficient distribution channels remain problems. Easing these bottlenecks requires long-term capital accumulation and profit maximization. The institutions necessary for such growth have not developed under Eastern Europe's new "pseudo-capitalism," as the authors demonstrate, and "pseudo-privatization," while distributing state property to citizens, has not provided them with the capital and technology they need to succeed.

This book contains the main results of INDEUNIS, which is an international research project coordinated by the Vienna Institute for International Economic Studies and financed by the European Commission under its Sixth Framework Programme. Researchers f

This publication contains a selection of papers presented at a conference discussing fundamental issues in the economics of transition, aspects of liberalization/privatization/stabilization and the experience of selected countries. The sessions lead to a number of hypotheses:- There is a need to analyze historical and economic aspects of phases of relative success of the socialist system of central planning- Next to the important role of distribution of personal incomes and wealth for the success of the transformation process, the question of "optimal change of personal income and wealth distribution" during the process of transformation has to be raised.- In assessing the costs and benefits of reform policies, any methodological approach should take into account an intertemporal perspective- How much does the EU continue protectionism against countries which will not become its members in the near future?- The role of the institutional environment shall not be neglected when analyzing the process of transition: financial markets e. g. are of great relevance for sound development.- An early status of independence for the central bank from public finance obligations appears to help to eliminate the monetary overhang.- A quick, almost instant liberalization strategy (countries of Central and Eastern Europe) seems to be more successful than gradual liberalization (Russia, Ukraine, Belarus) along with interventionism of trade policy.