Consequences of External Macroeconomic Shocks Transmission Through International Trade Channel: The Case of the Central and Eastern European Countries

The Central and Eastern European countries (CEECs) have undergone different types of shocks and structural changes during the last two decades. Firstly, the CEECs had moved from a state-planned to a market-based economic system, with private ownership of assets and market-supporting institutions. These changes were exacerbated by the collapse of historic trading relationships and fiscal shocks to state budgets. Secondly, in European Union (EU) enlargement process, Czech Republic, Hungary, Poland, Slovenia, Slovakia, and the Baltic countries Estonia, Latvia, and Lithuania joined the European Union in 2004, Bulgaria and Romania in 2007, and Croatia in 2013. Thirdly, some of the CEECs (Slovenia, Slovakia, and the Baltic countries) have recently adopted the euro and joined to the euro zone. Fourthly, the global financial crisis (GFC) that started in 2007–2008 played a significant role in a downturn in economic activity leading to the 2008–2012 global (including the EU) economic recession. The main research questions are how these external shocks and structural changes affected foreign trading relationships of the CEECs and economic integration of this group of countries at the regional and global level and which type of external macroeconomic shocks causes the spillover effect transmission through international trade channel? The main findings of this study are as follows: 1. The shocks from the EU countries can be directly transmitted to the CEECs due to the intense international trade relations. 2. The shocks originated in the United States, China (except Hong Kong), Switzerland, Russia, and Turkey could be indirectly transmitted to the CEECs through international trade relations with the EU. 3. The results of the Johansen cointegration test suggest that the long-run relationship among the CEECs and EU exists. In addition, the empirical results suggest that the exchange rate shock positively affects the real GDP growth in the CEECs; however, depreciation of the currencies of the main export partners decreases the export flows to these countries. The economic growth in the main export countries positively affects the real GDP growth and real export flows in CEECs. An increase in consumption in the main export countries positively affects the real GDP growth in the CEECs; however, a negative impact of consumption on the real export flows to the main export countries is observed. In addition, the effect of macroeconomic shocks is more significant on real export flows.