IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Regional integration and the Baltics : which way?

  • Sorsa, Piritta
Registered author(s):

    Some propose that the Baltics seek deeper trade integration with the East to maintain existing trade flows and because the Baltics have had little market access to the West. The author argues against such integration, proposing instead that the Baltics improve trade relations with the West, where market access is likely to be less and less of a problem. After assessing factor endowments, and using a gravity model, the author predicts that more than 90 percent of Baltic trade will be with non-former Soviet Union countries. Initial exports are likely to be labor- and resource-intensive goods, because it is easier to adjust to Western standards with those goods. But in the long run, the Baltics will have a comparative advantage in skill-intensive manufactures, as their years of schooling are among the highest in the developing world. (Exports of labor- and resource-intensive products, especially from Estonia, have already increased. Estonia is the most advanced of the Baltics in its transition to a market economy.) The author predicts the Baltics will eventually trade mostly with Europe. She says the Baltics are unlikely to benefit from deeper trade integration with the East for the following reasons. The lower adjustment costs and the benefits of maintaining viable industries resulting from sustained trade flows with the East are likely to be outweighed by the cost of lost opportunities in the West. Temporary preferential arrangements entail high administrative costs and arerarely temporary. Preferential trade could mean slower adjustment and powerful lobbies against change. Numerous nontariff barriers with the East, slow and unreliable payments, unstable currencies, and barter arrangements increase transaction costs and impede the creation of more trade. Preferential trading with Russia or the Ukraine entails the risk of increasing external protection for the more liberal Baltics. This risk is magnified by the relatively slow adjustment of Russia and other former Soviet Union republics and the faster reform in the Baltics. The recent free trade agreement among the Baltics allows countries to maintain independent external trade policies, without creating the many administrative problems of a union. Free trade agreements will not only improve market access but may help lock in reforms at home, which may help attract foreign investment. With liberalized trade, competition from liberal Estonia may help reduce protection levels in Latvia and Lithuania. After initial adjustment, trade with the West will promote faster, more sustainable growth. Allocation of resources based on world prices, and transfer of technology, will increse productivity growth. Trade with the West will probably also lower environmental costs. OECD protectionism is unlikely to become an insurmountable obstacle to more Baltic exports to the West. Recent statements about Europe turning its back on the reforming East seem exaggerated, at least for the Baltics. Their position as the former Soviet Union member most discriminated against by Europe is changing, as they rapidly climb the various pyramids of access to European trade.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1994/12/01/000009265_3970716142022/Rendered/PDF/multi0page.pdf
    Download Restriction: no

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1390.

    as
    in new window

    Length:
    Date of creation: 31 Dec 1994
    Date of revision:
    Handle: RePEc:wbk:wbrwps:1390
    Contact details of provider: Postal: 1818 H Street, N.W., Washington, DC 20433
    Phone: (202) 477-1234
    Web page: http://www.worldbank.org/
    Email:


    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1390. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.