European Trade and Foreign Direct Investment. U-Shaping Industrial Output in Central and Eastern Europe: Theory and Evidence
AbstractWe examine the evolution of industrial output in Bulgaria, Hungary, Poland and Romania over the period 1989-1995 in terms of product trade orientation prior to the transition process, some products traded in a market economy while others traded in the artificial market of the Soviet Bloc. We theoretically and empirically model the growth dynamics of EU oriented output within sectors of industry, ex-post trade and market liberalisation, as Foreign Direct Investment (FDI) induced Schumpeterian (vertical) waves of product innovation. We estimate the growth dynamics of non-EU oriented output within sectors as unobservable deterministic sector and country specific heterogeneity. The results indicate that the evolution of industrial production within sectors that were EU oriented prior to transition grew with increasing convexity over time. This growth was unconstrained by the transition process due to increased access to the European market, foreign capital and foreign expertise. Pre-transition non-EU industrial production is estimated to follow the same pattern as that observed in CIS countries. Hence the faster recovery, or the U-Shape industrial output, observed in CEE as compared with CIS countries is mainly explained by the inherited presence of EU oriented production and its unconstrained growth over the transition period.
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Bibliographic InfoPaper provided by LICOS - Centre for Institutions and Economic Performance, KU Leuven in its series LICOS Discussion Papers with number 7398.
Length: 34 pages
Date of creation: 01 Jun 1998
Date of revision:
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More information through EDIRC
Foreign Direct Investment; Industrial Output Growth; Transition Economies; Cross- Country and Branches of Industry Regressions;
Other versions of this item:
- Patrick P. Walsh & Alexander Repkine, 1998. "European Trade and Foreign Direct Investment U-Shaping Industrial Output in Central and Eastern Europe - Theory and Evidence," IMF Working Papers 98/150, International Monetary Fund.
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
- P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-10-20 (All new papers)
- NEP-EEC-2003-10-20 (European Economics)
- NEP-IFN-2003-10-20 (International Finance)
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