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The Potential for Trade between Austria and Five East and Central European Countries

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  • Peter Egger

    (WIFO)

Abstract

This article attempts to assess the potential for foreign trade in five of the ten Central and Eastern European countries (CEECs) with the help of a foreign trade model. The main exogenous variables in this model are the size of the countries (sum of GDP of a pair of trading partners as well as the GDP ratio) and each country's factor endowment (population, capital), a geographical component (distance between the economic centers of two trading partners as an approximation to transportation costs in foreign trade), and various other variables which reflect trade preferences between the countries (common language and common border). The approach which was chosen for the specification of the model allows the identification of country-specific deviations from the average export relations in intra-EU trade and in trade between the EU and the five Central and Eastern European countries. The question is raised in this article whether the structural backwardness (small degree of openness toward the EU) of the five Central and East European countries (qua exporters to the EU and importers from the EU) will be gradually reduced by the process of accession itself. In order to evaluate the effects of a ceteris paribus reduction in these deviations, the simulations were based on the assumptions that the structural divergences of the CEECs would be completely eliminated by the hypothetical time of accession (2004 for Hungary, Poland, the Czech Republic, and Slovenia, and 2010 for Slovakia). The average annual growth rates predicted by the model for bilateral trade flows between Austria and the five CEECs are very high (between 14.4 and 13.2 percent), but they do not deviate in a striking way from the growth rates of Austria's nominal exports to these countries actually observed during the 1990s: Poland 15 percent (1993-1997), Hungary 19 percent (1989-1997), the Czech Republic 17 percent (1993-1997), Slovakia 24 percent (1993-1997), and Slovenia 18 percent (1992-1997). Even though the structural weaknesses of the CEECs will probably be eliminated over a long time period, it should be emphasized that the growth rates recorded for trade with the CEECs indicate that structural change is already under way; this process is likely to continue and is being facilitated by the so-called Europe agreements (reduction of tariffs and other barriers to trade, support for infrastructure investment, inflow of direct foreign investment, concomitant transfer of know-how, etc.) and the current accession negotiations.

Suggested Citation

  • Peter Egger, 1998. "The Potential for Trade between Austria and Five East and Central European Countries," WIFO Monatsberichte (monthly reports), WIFO, vol. 71(11), pages 751-759, November.
  • Handle: RePEc:wfo:monber:y:1998:i:11:p:751-759
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    References listed on IDEAS

    as
    1. Hamilton, C.B. & Winters, L.A., 1992. "Opening Up International Trade in Eastern Europe," Papers 511, Stockholm - International Economic Studies.
    2. Helpman, Elhanan, 1987. "Imperfect competition and international trade: Evidence from fourteen industrial countries," Journal of the Japanese and International Economies, Elsevier, vol. 1(1), pages 62-81, March.
    3. Wang, Zhen Kun & Winters, L. Alan, 1991. "The Trading Potential of Eastern Europe," CEPR Discussion Papers 610, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

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