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Trade and production fragmentation : Central European economies in European Union networks of production and marketing

Listed author(s):
  • Kaminski, Bartlomiej
  • Ng, Francis

Developments driven by trade liberalization and tehcnological progress mean that old development strategies, based on state intervention and trade protection, no longer work. Global competition has brought a growing emphasis on product standards, rapid innovation, adaptability, and speedy response. Technology has made possible the fragmentation of production. Firms that become part of global production and distribution networks do not have to be foreign-owned, as many multinationals contract out the delivery of services and products. Foreign involvement facilitates the transfer of managerial and technological know-how, so firms benefit from becoming part of a network. Small producers, rather than servicing small local markets, can supply large firms abroad. Foreign participation--through outsourcing or direct investments--may offer direct access to a parent company's global networks. Becoming part of a multinational's production and distribution network is a cheap way to market products. But the unprecedented globalization of the production process has brought the integration of trade and the disintegration of production, with deep implications for the international division of labor. Have Central European economies been able to take advantage of the global fragmentation and disintegration of production and the division of labor? Ten countries--Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia--have made large strides toward readjusting their production structures to international markets, mainly in the European Union. And trade in industrial products has lost its pre-transition idiosyncratic character. All 10 economies apear to be on the same track as the European Union in changing patterns of trade with the networks the authors discuss. Progress is advanced in furniture (most of the 10 economies) and automobiles (the Czech Republic, Hungary, Poland, Slovakia, and Slovenia) and is gaining momentum in"information revolution"networks (Estonia and Hungary). Progress in industrial integration with the European Union has been uneven. The first-tier economies (the Czech Republic, Estonia, Hungary, Poland, Slovakia, and Slovenia) are much less so and, despite relatively low wages, have no comparative advantage in assembly in EU markets. Among first-tier economies, three stand out: Estonia and Hungary (in integration into"information revolution"markets) and Slovakia (in restructuring its automotive sector).

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2611.

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Date of creation: 30 Jun 2001
Handle: RePEc:wbk:wbrwps:2611
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  1. John Zysman & Andrew Schwartz, 1998. "Reunifying Europe in an Emerging World Economy: Economic Heterogeneity, New Industrial Options, and Political Choices," Journal of Common Market Studies, Wiley Blackwell, vol. 36(3), pages 405-429, September.
  2. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
  3. Klaus E Meyer, 2000. "International Production Networks and Enterprise Transformation in Central Europe," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 42(1), pages 135-150, April.
  4. Ng, Francis & Yeats, Alexander, 1999. "Production sharing in East Asia : who does what for whom, and why?," Policy Research Working Paper Series 2197, The World Bank.
  5. Yeats, Alexander J., 1998. "Just how big is global production sharing?," Policy Research Working Paper Series 1871, The World Bank.
  6. Schwartz, Andrew & Zysman, John, 1998. "Reunifying Europe in an Emerging World Economy: Economic Heterogeneity, New Industrial Options, and Political Choices," UCAIS Berkeley Roundtable on the International Economy, Working Paper Series qt60w702zc, UCAIS Berkeley Roundtable on the International Economy, UC Berkeley.
  7. Michael Borrus & John Zysman, 1997. "Globalization With Borders," Industry and Innovation, Taylor & Francis Journals, vol. 4(2), pages 141-166.
  8. Djankov, Simeon & Hoekman, Bernard, 1996. "Intra-Industry Trade, Foreign Direct Investment and the Reorientation of East European Exports," CEPR Discussion Papers 1377, C.E.P.R. Discussion Papers.
  9. Irwin, Douglas A, 1996. "The United States in a New Global Economy? A Century's Perspective," American Economic Review, American Economic Association, vol. 86(2), pages 41-46, May.
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