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Making Sense of the Soviet Trade Shock in Eastern Europe: A Framework and Some Estimates

  • Dani Rodrik

Eastern European countries have experienced sharp declines in real GDP since 1990. One of the reasons for this decline is the Soviet trade shock, deriving from the collapse of the CMEA and of traditional export markets in the Soviet Union. This paper is an attempt to quantify the magnitude of this external shock. A conceptual framework is developed to show that the shock has three distinct elements: (a) a terms of trade deterioration; (b) a market-loss effect; and (c) a removal-of-import-subsidy effect. Taking all three together, and also adding in Keynesian multiplier effects, the conclusion is that the Soviet trade shock accounts for all of the decline in Hungarian GDP, about 60 percent of decline in Czechoslovakia, and between a quarter and a third of the decline in Poland.

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File URL: http://www.nber.org/papers/w4112.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4112.

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Date of creation: Jun 1992
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Publication status: published as M. Blejer et. al. (ed.), Eastern Europe in Transition: From Recession to Growth?, Washington, D.C., The World Bank, 1993
Handle: RePEc:nbr:nberwo:4112
Note: ITI
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  1. Dani Rodrik, 1992. "Foreign Trade in Eastern Europe's Transition: Early Results," NBER Working Papers 4064, National Bureau of Economic Research, Inc.
  2. Landesmann, Michael & Székely, Istvan P., 1991. "Industrial Restructuring and the Reorientation of Trade in Czechoslovakia, Hungary and Poland," CEPR Discussion Papers 546, C.E.P.R. Discussion Papers.
  3. Oblath, Gabor & Tarr, David, 1991. "The terms-of-trade effects from the elimination of state trading in Soviet - Hungarian trade," Policy Research Working Paper Series 690, The World Bank.
  4. Peter B. Kenen, 1991. "Transitional Arrangements for Trade and Payments among the CMEA Countries," IMF Staff Papers, Palgrave Macmillan, vol. 38(2), pages 235-267, June.
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