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Determining Factors of the Czech Foreign Trade Balance: Structural Issues in Trade Creation

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  • Vladimir Benacek
  • Ladislav Prokop
  • Jan A. Visek

Abstract

Using panel data for 29 industries, we test alternative specifications of Czech export and import functions. The balance of trade is primarily influenced by the real exchange rate, aggregate demand and tariff changes. Reduced growth of the Czech economy after 1996 was an important factor that has kept the balance of trade at a sustainable level in the medium-term, contributing even to the appreciation of the real exchange rate. The secondary fundamental factors, relevant for structural adjustments, a sustainable trade balance and an equilibrium exchange rate, rest, however, on supply-side characteristics such as changes in endowments of physical and human capital, inflows of FDI and growing competitiveness of domestic production. We can argue that appreciation of the real exchange rate is a handicap to Czech exports, especially to exports to non-EU countries. Nevertheless, in the EU case, the appreciation of koruna was countervailed by tariff concessions, improved quality, switchover to commodities with higher contents of value added, gains associated with FDI and growing foreign demand absorption. At the same time, appreciation of the real exchange rate has significantly opened the Czech market to imports but the unconstrained import penetration remained blocked by the growing competitiveness of Czech products in costs, prices and quality.

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Bibliographic Info

Paper provided by Czech National Bank, Research Department in its series Working Papers with number 2003/03.

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Date of creation: Jun 2003
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Handle: RePEc:cnb:wpaper:2003/03

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Keywords: export and import specialisation; international trade; panel data estimation; production factor intensities; sectoral trade balance.;

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Cited by:
  1. Vit Barta, 2005. "Fulfilment of the Maastricht Inflation Criterion by the Czech Republic: Potential Costs and Policy Options," Research and Policy Notes 2005/04, Czech National Bank, Research Department.
  2. Balázs Égert & Kirsten Lommatzsch, 2004. "Equilibrium Exchange Rates in the Transition: The Tradable Price-Based Real Appreciation and Estimation Uncertainty," William Davidson Institute Working Papers Series 2004-676, William Davidson Institute at the University of Michigan.
  3. Thomas Reininger, 2008. "Factors Driving Import Demand in Selected Central, Eastern and Southeastern European Countries," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 100-125.
  4. Katerina Smidkova & Ales Bulir, 2004. "Would Fast Sailing Towards the Euro Be Smooth?: What Fundamental Real Exchange Rates Tell Us About Acceding Economies," Macroeconomics 0408002, EconWPA.
  5. Ales Bulir & Katerina Smidkova, 2004. "Exchange Rates in the New EU Accession Countries: What Have We Learned from the Forerunners," Working Papers 2004/10, Czech National Bank, Research Department.
  6. Balázs �gert & Amalia Morales-Zumaquero, 2008. "Exchange Rate Regimes, Foreign Exchange Volatility, and Export Performance in Central and Eastern Europe: Just another Blur Project?," Review of Development Economics, Wiley Blackwell, vol. 12(3), pages 577-593, 08.
  7. Kateřina Šmídková & Aleš Bulíř, 2005. "Would Fast Sailing Towards the Euro Be Smooth? What Fundamental Real Exchange Rates Tell Us," Prague Economic Papers, University of Economics, Prague, vol. 2005(4), pages 291-316.
  8. Karel Janda, 2008. "Government Support of the Czech Export Credit," Český finanční a účetní časopis, University of Economics, Prague, vol. 2008(1), pages 62-75.
  9. Thomas Gruber & Doris Ritzberger-Grünwald, 2005. "The Euro Changeover in the New Member States - A Preview," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 52-75.
  10. Benkovskis, Konstantins, 2005. "Econometric analysis and forecasting of Latvia's balance of payments," MPRA Paper 23274, University Library of Munich, Germany.
  11. Vladimír Benáček & Jiří Podpiera & Ladislav Prokop, 2006. "Command Economy after the Shocks of Opening up: The Factors of Adjustment and Specialisation in the Czech Trade," Working Papers IES 2006/20, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Apr 2006.
  12. Vladimir Benacek & Jiri Podpiera & Ladislav Prokop, 2005. "Determining Factors of Czech Foreign Trade: A Cross-Section Time Series Perspective," Working Papers 2005/03, Czech National Bank, Research Department.
  13. García Solanes José, 2008. "Real Exchange Rate Appreciation in Central and Eastern European Countries. Why the Balassa-Samuelson Effect Does Not Explain the Whole Story," Working Papers 2010100, Fundacion BBVA / BBVA Foundation.

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