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The terms-of-trade effects from the elimination of state trading in Soviet - Hungarian trade

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  • Oblath, Gabor
  • Tarr, David

Abstract

Economists have debated whether the Soviet Union subsidized trade with its Eastern European partners in the Council of Mutual Economic Assistance (CMEA). Effective January 1, 1991, former CMEA members implemented their"switchover"decision to convert to world market prices denominated in convertible currency. The switchover dramatically reduced the role of"state trading"by permitting direct enterprise to enterprise transactions denominated and settled in convertible currency. The authors made an intensive study of the trading relationship between Hungary and the Soviet Union as a case study on the terms-of-trade issue. A detailed empirical investigation of prices in Soviet-Hungarian trade before and after the switchover provides some indication of the terms-of-trade loss that Hungary is likely to suffer as a result of the switchover of its trading relationship with the Soviet Union. Contrary to conventional wisdom, the authors find that the majority of Hungarian firms exporting to the Soviet Union have been disfavored by the combination of the payments mechanism, exchange rate, tax and subsidy policies. The experience of early 1991 suggests a significant decline is likely to occur in Soviet imports from Hungary during the remainder of the year. A variety of problems account for the decline, many of them specific to internal conditions in the Soviet Union.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 690.

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Date of creation: 31 May 1991
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Handle: RePEc:wbk:wbrwps:690

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Keywords: Environmental Economics&Policies; Economic Theory&Research; Access to Markets; Markets and Market Access; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT;

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  1. 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.
  2. Brada, Josef C., 1988. "Interpreting the Soviet subsididzation of Eastern Europe," International Organization, Cambridge University Press, Cambridge University Press, vol. 42(04), pages 639-658, September.
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Cited by:
  1. Rodrik, Dani, 1992. "Making Sense of the Soviet Trade Shock in Eastern Europe: A Framework and Some Estimates," CEPR Discussion Papers, C.E.P.R. Discussion Papers 705, C.E.P.R. Discussion Papers.
  2. Morris Morkre & David Tarr, 1995. "Reforming Hungarian agricultural trade policy: A quantitative evaluation," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 131(1), pages 106-131, March.
  3. 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.

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