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Making Sense of the Soviet Trade Shock in Eastern Europe: A Framework and Some Estimates

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  • Rodrik, Dani

Abstract

East European countries have experienced sharp declines in real GDP since 1990. One of the reasons for this decline is the Soviet trade shock caused by the collapse of the CMEA and of traditional export markets in the Soviet Union. This paper is an attempt to quantify the magnitude of this external shock. A conceptual framework is developed to show that the shock has three distinct elements: (a) a terms-of-trade deterioration; (b) a market-loss effect; and (c) a removal-of-import-subsidy effect. Combining these three effects and adding Keynesian multiplier effects, the conclusion is that the Soviet trade shock accounts for all of the decline in Hungarian GDP, about 60% of the decline in Czechoslovakia, and between one-quarter and one-third of the decline in Poland.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 705.

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Date of creation: Jul 1992
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Handle: RePEc:cpr:ceprdp:705

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Keywords: CMEA; Eastern Europe; Soviet Trade Shock;

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References

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  1. Peter B. Kenen, 1991. "Transitional Arrangements for Trade and Payments among the CMEA Countries," IMF Staff Papers, Palgrave Macmillan, vol. 38(2), pages 235-267, June.
  2. Oblath, Gabor & Tarr, David, 1992. "The terms-of-trade effects from the elimination of state trading in Soviet-Hungarian trade," Journal of Comparative Economics, Elsevier, vol. 16(1), pages 75-93, March.
  3. Dani Rodrik, 1992. "Foreign Trade in Eastern Europe's Transition: Early Results," NBER Working Papers 4064, National Bureau of Economic Research, Inc.
  4. Landesmann, Michael & Székely, Istvan, 1991. "Industrial Restructuring and the Reorientation of Trade in Czechoslovakia, Hungary and Poland," CEPR Discussion Papers 546, C.E.P.R. Discussion Papers.
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Cited by:
  1. Pastor, Manuel Jr & Zimbalist, Andrew, 1995. "Waiting for change: Adjustment and reform in Cuba," World Development, Elsevier, vol. 23(5), pages 705-720, May.
  2. Joshua Aizenman & Peter Isard, 1993. "Resource Allocation During the Transition to a Market Economy: Political Implications of Supply Bottlenecks and Adjustment Costs," NBER Working Papers 4366, National Bureau of Economic Research, Inc.
  3. Commander, Simon & Coricelli, Fabrizio, 1992. "Output decline in Hungary and Poland in 1990-91 : structural change and aggregate shocks," Policy Research Working Paper Series 1036, The World Bank.
  4. Kazimierz Stanczak, 1992. "A Devaluation With Labor-Intensive Trading and Inelastic Labor Supply," UCLA Economics Working Papers 683, UCLA Department of Economics.
  5. Go, Delfin S., 1994. "Revenue uncertainty and the choice of tax instrument during the transition in Eastern Europe," Policy Research Working Paper Series 1330, The World Bank.
  6. Paul Hare & Alan Bevan & Jon Stern & Saul Estrin, 2000. "Supply Responses in the Economies of the Former Soviet Union," CERT Discussion Papers 0009, Centre for Economic Reform and Transformation, Heriot Watt University.
  7. Avanesyan, Vahram & Freinkman, Lev, 2002. "Costing-out the Big Bang: Impact of external shocks on the Armenian economy at the outset of transition," MPRA Paper 10012, University Library of Munich, Germany.
  8. Kazimierz Stanczak, 1994. "Endogenous Market Power and Adjustment under Fixed Exchange Rates: Interpreting the Polish Experience 1990-1991," UCLA Economics Working Papers 714, UCLA Department of Economics.

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