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Intra-industry trade, foreign direct investment, and the reorientation of Eastern European exports

  • Hoekman, Bernard
  • Djankov, Simeon

In the first half of the 1990s exports to Organization for Economic Cooperation and Development (OECD) countries from many Central and Eastern European countries grew rapidly. The authors explore the extent that export growth reflects economic restructuring and changes in trade composition as opposed to redirection of traditional Council of Mutual Economic Assistance (CMEA) exports to the West. They also investigate vertical intra-industry exchanges role in trade expansion with Western Europe. They find a strong relationship between export performance and growth in vertical intra-industry trade with the European Union (EU). The Czech and Slovak Republics, Hungary, Poland, and Slovenia all rely heavily on the EU for inputs. As their per capita exports to the EU have grown the fastest, this appears to be a successful transition characteristic. The Czech and Slovak Republics registered the highest export growth and the greatest trade pattern reorientation. They have the highest intra-industry trade growth level and rate with the EU, but have undergone the least change in export composition. But substantial changes have occurred in the export composition within traditional export categories. This suggests that Czech and Slovak firms pursueda strategy of upgrading and differentiating traditional exports, relying on EU firms for new machinery, components, and know-how. Simple redirection of goods that were traditionally exported to CMEA markets does not appear to have played an important role in the growth of exports to Western Europe. Export growth is in products that were not exported to the CMEA or in traditional export items that have been substantially upgraded or differentiated. Foreign direct investment inflows correlate highly with intra-industry trade levels. But, excluding the automobile sector, foreign direct investment seems unlikely to have been a major force driving intra-industry trade growth. These exchanges and the underlying integration in the world economy mostly reflect arm's length transactions between Central and Eastern European firms and their European counterparts.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1652.

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Date of creation: 30 Sep 1996
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Handle: RePEc:wbk:wbrwps:1652
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  1. Hummels, David & Levinsohn, James, 1995. "Monopolistic Competition and International Trade: Reconsidering the Evidence," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 799-836, August.
  2. Kaminski, Bartlomiej & DEC, 1994. "The significance of the"Europe agreements"for Central European industrial exports," Policy Research Working Paper Series 1314, The World Bank.
  3. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
  4. 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.
  5. Drábek, Zdenek & Smith, Alasdair, 1995. "Trade Performance and Trade Policy in Central and Eastern Europe," CEPR Discussion Papers 1182, C.E.P.R. Discussion Papers.
  6. Alan Deardorff, 1998. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Chapters, in: The Regionalization of the World Economy, pages 7-32 National Bureau of Economic Research, Inc.
  7. David Greenaway & Robert C. Hine, 1991. "Intra-Industry Specialization, Trade Expansion and Adjustment in the European Economic Space," Journal of Common Market Studies, Wiley Blackwell, vol. 29(6), pages 603-622, December.
  8. Neven, Damien J, 1994. "Trade Liberalization with Eastern Nations. How Sensitive?," CEPR Discussion Papers 1000, C.E.P.R. Discussion Papers.
  9. Hoekman, Bernard & Pohl, Gerhard, 1995. "Enterprise restructuring in Eastern Europe : how much? how fast? where? - preliminary evidence from trade data," Policy Research Working Paper Series 1433, The World Bank.
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