ECONOMIC TRANSITION IN CENTRAL AND EASTERN EUROPE: THE CONSEQUENCES FOR TRADE STRUCTURE AND TRADE VOLUME

Abstract

In this article we analyze the impact that the transition process in Central and Eastern Europe (CEEC) has had on the composition and the direction of their trade with the Organization for Economic Cooperation and Development (OECD) and non-OECD countries. We further inquire whether their trade composition is in line with expectations based on the CEECs' presumed comparative advantages. To undertake such a comparison we define and compute two indices of revealed comparative advantage (RCA) based on the CEECs' actual trade flows. The RCAs of the Central and Eastern European countries are then compared to a group of small, Western European countries. Our results are generally consistent with expectations based on the factor proportions theory of trade. The CEEC trade composition reflects their relative abundance of labor, raw materials, and energy and their relative scarcity of human capital and advanced technologies. Finally, we have estimated an export equation based on data from the Comparator countries. The parameter estimates thus obtained were used to generate projected export values for Eastern European countries for 1993. Our results indicate that the future (expected) level of CEECs' exports will be significantly higher than their current level, as their market reforms proceed to their conclusion.