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European Trade and Foreign Direct Investment. U-Shaping Industrial Output in Central and Eastern Europe: Theory and Evidence

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  • Alexandre Rekine
  • Patrick Paul Walsh

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Abstract

We 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 Info

Paper provided by LICOS - Centre for Institutions and Economic Performance, KU Leuven in its series LICOS Discussion Papers with number 7398.

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Length: 34 pages
Date of creation: 01 Jun 1998
Date of revision:
Handle: RePEc:lic:licosd:7398

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Keywords: Foreign Direct Investment; Industrial Output Growth; Transition Economies; Cross- Country and Branches of Industry Regressions;

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  1. Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995. "How Does Foreign Direct Investment Affect Economic Growth?," NBER Working Papers 5057, National Bureau of Economic Research, Inc.
  2. Roland, Gérard & Verdier, Thierry, 1997. "Transition and the Output Fall," CEPR Discussion Papers 1636, C.E.P.R. Discussion Papers.
  3. Aturupane, Chonira & Djankov, Simeon & Hoekman, Bernard, 1997. "Determinants of Intra-Industry Trade between East and West Europe," CEPR Discussion Papers 1721, C.E.P.R. Discussion Papers.
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Cited by:
  1. Giulia Faggio, 2007. "Job Destruction, Job Creation and Unemployment in Transition Countries: What Can We Learn?," CEP Discussion Papers dp0798, Centre for Economic Performance, LSE.
  2. Orla Doyle & Patrick Paul Walsh, 2005. "Did political constraints bind during transition? Evidence from Czech elections 1990 - 2002," Trinity Economics Papers tep200515, Trinity College Dublin, Department of Economics.
  3. Konings, Joep & Xavier, Ana, 2002. "Firm growth and survival in a transition country: Micro evidence from Slovenia," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/121576, Katholieke Universiteit Leuven.
  4. Bezuidenhout, Henri & Naude, Wim, 2008. "Foreign Direct Investment and Trade in the Southern African Development Community," Working Papers RP2008/88, World Institute for Development Economic Research (UNU-WIDER).
  5. Faggio, Giulia & Konings, Joep, 1999. "Gross job flows and firm growth in transition countries : evidence using firm level data," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/237912, Katholieke Universiteit Leuven.
  6. Goran Vuksic, 2005. "Impact of foreign direct investment on Croatian manufacturing exports," Financial Theory and Practice, Institute of Public Finance, vol. 29(2), pages 131-158.
  7. repec:tcd:wpaper:tep15 is not listed on IDEAS
  8. Faggio, Giulia & Konings, Jozef, 1999. "Gross Job Flows and Firm Growth in Transition Countries: Evidence Using Firm Level Data on Five Countries," CEPR Discussion Papers 2261, C.E.P.R. Discussion Papers.
  9. Köke, Jens & Salem, Tanja, 2000. "Corporate finance and restructuring: evidence from Central and Eastern Europe," ZEW Discussion Papers 00-21, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  10. McGoldrick, Peter & Walsh, P. Paul, 2007. "Successful Factor Market Competition Pre-Privatisation? China`s eclectic.com," Research Technical Papers 3/RT/07, Central Bank of Ireland.
  11. Magdalena RĂDULESCU & Luminiţa ŞERBĂNESCU, 2012. "The Impact of FDIs on Exports, and Export Competitiveness in Central and Eastern European Countries," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, vol. 2(1), pages 5, February.

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