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Creating the reform resistant dependent economy : the CMEA international trading relationship

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Author Info
Hillman, Arye L.
Schnytzer, Adi

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Abstract

In this report the authors analyze the CMEA trading relationship using the standard concepts of 1) specialization in accord with comparative advantage, and 2) the incentives to resist trade liberalization because of rents accruing to industry specific factors of production (including job security that sustains hidden unemployment). These concepts permit a demonstration of how the CMEA system of international trade sustained a dependence relationship between the Eastern European economies and the Soviet Union that inhibited market oriented liberalization and adjustment. The authors focus on Poland and Hungary and in describing and analyzing the implications of CMEA trading relationship, they use conceptions and models that are well known from the theory of international trade and the theory of the firm. In conclusion, abolition of the CMEA trading system and a change to trade at world prices eliminates the terms of trade advantage of the Eastern European economies. The terms of trade loss and the writing down of the value of the CMEA capital stock are not independent or additive costs of the end of the CMEA system of international trade, but will have been linked via capitalization of the preferential terms of trade into the value of the CMEA transaction specific capital.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 505.

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Date of creation: 30 Sep 1990
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Handle: RePEc:wbk:wbrwps:505

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Related research
Keywords: Trade and Services; Economic Theory&Research; Environmental Economics&Policies; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Trade Policy;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Arad, Ruth W. & Hillman, Arye L., 1979. "Embargo threat, learning and departure from comparative advantage," Journal of International Economics, Elsevier, vol. 9(2), pages 265-275, May. [Downloadable!] (restricted)
  2. Bauer, Tamas, 1983. "The Hungarian alternative to soviet-type planning," Journal of Comparative Economics, Elsevier, vol. 7(3), pages 304-316, September. [Downloadable!] (restricted)
  3. Brada, Josef C, 1988. "Interpreting the Soviet Subsidization of Eastern Europe," International Organization, MIT Press, vol. 42(4), pages 639-58, Autumn.
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  4. Kornai, Janos, 1986. "The Hungarian Reform Process: Visions, Hopes, and Reality," Journal of Economic Literature, American Economic Association, vol. 24(4), pages 1687-1737, December. [Downloadable!] (restricted)
  5. Mayer, Wolfgang, 1974. "Short-Run and Long-Run Equilibrium for a Small Open Economy," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 955-67, Sept./Oct. [Downloadable!] (restricted)
  6. Cheng, Leonard K., 1987. "Uncertainty and economic self-sufficiency," Journal of International Economics, Elsevier, vol. 23(1-2), pages 167-178, August. [Downloadable!] (restricted)
  7. Baldwin, Robert E., 1984. "Trade policies in developed countries," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 12, pages 571-619 Elsevier. [Downloadable!] (restricted)
  8. Joseph Pelzman, 1978. "Soviet-COMECON trade: The question of intra-industry specialization," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 114(2), pages 297-304, June. [Downloadable!] (restricted)
  9. Hillman, Arye L & Ursprung, Heinrich W, 1988. "Domestic Politics, Foreign Interests, and International Trade Policy," American Economic Review, American Economic Association, vol. 78(4), pages 719-45, September.
  10. Jones, Ronald W., 1975. "Income distribution and effective protection in a multicommodity trade model," Journal of Economic Theory, Elsevier, vol. 11(1), pages 1-15, August. [Downloadable!] (restricted)
  11. Robert E. Baldwin, 1982. "The Political Economy of Protectionism," NBER Chapters, in: Import Competition and Response, pages 263-292 National Bureau of Economic Research, Inc. [Downloadable!]
  12. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-40, September. [Downloadable!] (restricted)
  13. Bauer, Tamas, 1988. "Economic Reforms within and beyond the State Sector," American Economic Review, American Economic Association, vol. 78(2), pages 452-56, May. [Downloadable!] (restricted)
  14. Desai, Padma, 1986. "Is the Soviet Union subsidizing Eastern Europe?," European Economic Review, Elsevier, vol. 30(1), pages 107-116, February. [Downloadable!] (restricted)
  15. Brada, Josef C., 1985. "Soviet subsidization of Eastern Europe: The primacy of economics over politics?," Journal of Comparative Economics, Elsevier, vol. 9(1), pages 80-92, March. [Downloadable!] (restricted)
  16. Kornai, Janos, 1988. "Individual freedom and reform of the socialist economy," European Economic Review, Elsevier, vol. 32(2-3), pages 233-267, March. [Downloadable!] (restricted)
  17. Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, vol. 72(5), pages 1180-87, December. [Downloadable!] (restricted)
  18. Marrese, Michael & Vanous, Jan, 1983. "Unconventional gains from trade," Journal of Comparative Economics, Elsevier, vol. 7(4), pages 382-399, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Erzan, Refik & Holmes, Christopher & Safadi, Raed, 1992. "How changes in the former CMEA area may affect international trade in manufactures," Policy Research Working Paper Series 973, The World Bank. [Downloadable!]
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