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Trade and Foreign Direct Investment with Central and Eastern Europe: Its Impact on Spain

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Author Info
Gual, Jordi
Martín, Carmela

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Abstract

The increased integration of the economies of Central and Eastern Europe with the European Union (EU) as the Europe Agreements are progressively implemented, is projected to have a significant impact on trade flows with Spain, as exports and imports grow very rapidly, albeit starting from a very low base. In particular, the effect will be important for labour-intensive industries, which will confront export displacement in third (EU) markets and some foreign direct investment (FDI) diversion.Trade with Central and Eastern Europe is projected to increase, although it will still be a minor component of total Spanish trade or of EU trade with the Central and East European Countries (CEECs). The product composition of this trade will probably respond to the relative factor endowments underlying current trade patterns. Spain is likely to increase its exports of physical and human capital-intensive goods to the CEECs. An increase in Spanish imports of labour-intensive goods from these countries is also predicted. But the similarity of factor endowments with regards to the labour factor vis-à-vis the main countries in the EU, implies that some displacement of labour-intensive Spanish exports to the Union is going to take place.The evolution of trade flows will, of course, be contingent upon developments in FDI. Most FDI in Spain in recent years has been driven by a set of locational advantages which are unlikely to be replicated in the CEECs in the short and medium term (access to a large domestic market and to specialized resources such as pools of trained workers, suppliers, and infrastructure). The comparatively small part of FDI which has been attracted by relatively low unit labour costs (and tends to be geographically concentrated in the less developed regions of Spain) may be seriously affected by FDI diversion, however, since alternative locations in the CEECs provide lower cost export bases and a significantly better access to the main EU markets.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1006.

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Date of creation: Aug 1994
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Handle: RePEc:cpr:ceprdp:1006

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Related research
Keywords: Eastern Europe; European Integration; Foreign Direct Investment; International Trade; Spain;

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Find related papers by JEL classification:
F1 - International Economics - - Trade
F10 - International Economics - - Trade - - - General
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade
F15 - International Economics - - Trade - - - Economic Integration
F2 - International Economics - - International Factor Movements and International Business
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

Cited by:
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  1. Melanie Lansbury & Nigel Pain & Katerina Smidkova, 2004. "Foreign Direct Investment in Central Europe Since 1990: An Econometric Study," Macroeconomics 0404002, EconWPA. [Downloadable!]
  2. Ferto, Imre & Hubbard, L.J., 2003. "The Dynamics Of Agri-Food Trade Patterns - The Hungarian Case," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25851, International Association of Agricultural Economists. [Downloadable!]
  3. Jarko Fidrmuc & Daniela Grozea-Helmenstein & Andreas Wörgötter, 1999. "East-west intra-industry trade dynamics," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 135(2), pages 332-346, June. [Downloadable!] (restricted)
  4. Carmela Martín, 1995. "The impact of EU trade agreement with central and eastern european countries : the case of Spain," Documentos de trabajo de la Facultad de Ciencias Económicas y Empresariales 95-09, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales. [Downloadable!]
  5. Imre Ferto & Lionel J. Hubbard, 2001. "Competitiveness and comparative advantage in Hungarian agriculture," IEHAS Discussion Papers 0102, Institute of Economics, Hungarian Academy of Sciences. [Downloadable!]
  6. Barry Eichengreen & Richard Kohl, 1998. "The External Sector, the State and Development in Eastern Europe," UCAIS Berkeley Roundtable on the International Economy, Working Paper Series 1034, UCAIS Berkeley Roundtable on the International Economy, UC Berkeley. [Downloadable!]
    Other versions:
  7. Marius Brülhart & Mary J. Kelly, 1999. "Ireland’s Trading Potential with Central and Eastern European Countries - A Gravity Study," The Economic and Social Review, Economic and Social Studies, vol. 30(2), pages 159-174. [Downloadable!]
    Other versions:
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