Evolving Structural Patterns in the Enlarging European Division of Labour: Sectoral and Branch Specialisation and the Potentials for Closing the Productivity Gap

The formerly socialist countries in Central East Europe strive to close the development gap between their economies and those of the countries in West Europe. Their main vehicles in support of catch-up development featured the internal and external liberalisation of markets. Internal liberalisation was geared towards replacing the system of economic planning with the governance of markets and external liberalisation aimed at integration into the World market in general and the European market in particular. European integration itself was coined to serve as an engine for economic development: market access, efficient allocation of resources in the international division of labour, and access to more advanced technology were perceived to be the main drivers. The political instrument in support of this is the prospected European Union membership. In fact, a selection of Central East European countries have been admitted and will become full members in April 2004. Today, slightly more than one decade after the outset of systemic transition, most of those countries are widely considered ‘functioning market- economies’. Their markets are well integrated into the European economic area, in as much as foreign trade had been liberalised gradually since the early 1990s and fully-fletched currency convertibility allows trade on the respective capital and foreign exchange markets in East and West. The notable exception, however, remains the labour markets: here political concerns of absorptive capacities in the West still postpone integration. With product markets near to full integration, the economies have undergone a profound process of structural change. The pattern of international specialisation which has emerged as a result of sectoral change is the focus of the research presented here. The main objective of research was to determine the patterns as they have evolved over time, and to assess the prospects of catching up derived from those sectoral patterns. This publication reports research and the results of one of the workpackages in a larger international cooperative research project, financed by the EU in its 5th Framework Programme: EU Integration and the Prospects for Catch-Up Development in CEECs - The Determinants of the Productivity Gap (HPSE-CT-2001-00065). This project is coordinated by the author of this report at the IWH. Whereas research in this workpackage is concluded with this report, other workpackages will continue to assess further determinants until late summer 2004, when the project formally ends. All research proceedings in this project can be revisited on the project internet-site: www.iwh- halle.de/projects/productivity-gap.htm