:
~~Policy
Re9egrch!
WORKING PAPERS
Trade
Internatlonal
InternationalEconomicsDepartment
The WorldBank
September1993
WPS 1179
Howthe MarketTransition
AffectedExportPerformance
in the CentralEuropean
Economies
BartlomiejKaminski
There appearsto be a closelinkbetweenexportperformanceand
the decision to move quickly to a market-based economy.
Countr-s thatremovedadministrativecontrolson prices,devaluedcurrency,introducedunifiedexchangerates,and liberalized
tradealso expandedexports.Thedrivingforceof exportgrowth
in five Centraland Eastern Europeancountrieswas manufactures, some of them redirectedfrom CMEAmarkets,primarily
to Germany.
dthe
ofidemamn=gBank suf and
Policy Re&rchWoing;Papa
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ndconcylui ons ab theautior'ca wn eyshould
ndbe auibutcd ito the World Bank, its Board of DiseAoon,its magemat.
or any of its memibercoutics.
Pollay Roe"arch
International Trade
WPS 1179
This paper -a product of the Intemational Trade Division, International Economics Department -is
part of a larger effort in the departnent to analyze the transition from central planning to market-based
economies. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Pauline Kokila, room S7-040, extension 33716 (September 1993, 38
pages).
Empirical ,tudies have paid little attention to the
supply-side forces behind the export performance of the Central and Eastern European
countries of Bulgaria, Czechoslovakia, Hungary,
Poland, and Romania (CEE-5) in OECD markets
after the collapse of central planning.
Kaminski examines export developments in
these countries in 1980-91, focusing on how
transformation programs affected trade. QECD
markets now receive three-fourths of CEE-5
exports. Sustaining this market penetration is
cru.al for countries making the transition to
market-based economies. Kaminski provides
insight into the impact of wansformation-cumstabilization programs on export performance.
These insights are relevant to former centrally
planned economies that have yet to restore
macroeconomic equilibrium and to liberalize
prices.
Kaminski examines the export performance
of the CEE-5 before and after the collapse of
central planning. He fmds a close link-between
export performance and the decision to move
quickly to a market-based economy. Countries
that removed administrative controls on prices,
devalued currency, introduced unified exchange
rates, and liberalized trade also expanded exports. Bulgaria and Romania, crippled by macro-
economic chaos and vacillating macroeconomic
reforn, registered drops in both exports and
imports.
Kaminski suggests that differences among
Czechoslovakia, Hungary, and Poland (CEE-3)
had little to do with previous trends in export
performance, extemal economic factors, and
earlier attempts at trade reform. The expansion
of exports in 1990-92 represented a dramatic
reversal of trends prevalent in the prior two
decades. The surge in exports is explained
neither by the length of time experimenting with
foreign trade under central planning nor by
earlier trends in competitiveness in OECD
markets.
The driving force of export growth was
manufactures, some of them redirected from
CMEA markets, primarily to Germany. The
severing of links that used to bind the economies
of the CIMEAhad a less destructive impact on
the foreign trade performance of the CEE-3 than
one might have expected.
The fact tha exports to the CMEA fell at the
same time that exports elsewhere (often of the
same products) increased suggests a causal
relationship.
'Me PolicyReserchWorkingPaperSeoesdisseniinatesthefadings of woskunderwayin theBank.Anobjectiveoftheseries
is to get these findingsout quickly,even if presentationsare less tha fully polished.'Me findings,interpretatioresand
conclusionsin thesepapers do not necessarilyrepresentofrficialBank policy.
Producedby the PolicyResearchDisseniinationCenter
How the Market Transition Affected Export Performance
in the Central European Economies
by
DartlomiejKaminski*
internationalTrade Division
International EconomicsDepartment, WorldBank
and the University ofMaryland, CollegePark
I wish to acknowledge the helpful comments from Ronald Duncan, Vikram
Nehru, Alexander Yeats, and participants of the division seminar on foreign
trade and the market transition in Central Europe. I would like to thank
vargaret Callan for her invaluable editorial assistance.
Table of Contents
1.
Introduction
.1................................................
II.
Limits to Changes in Foreign Trade Regimes under Central Planning .
m.
CEE-5 Exports to the OECD in the 1980's: The Initial Breakdown and GromwngMarginalization S
A.
An Overview of Major Tendencies in Export Performance .S
B.
Two Distinct Phases: Breakdown and Precarious Recovery ....
The Export Upswing: in Defiance of Past Trends ....
IV.
......
A.
Chalenging the Projections ....................................
B.
Rfor
8
11
C.
Genmany: Locomotive of CEE-5 Export Growth .......................
11
. . 12
..
Make a Difference ............................
13
.......
16
A.
The Collapse of the CMEA ....................................
17
B.
The Redirtion
21
C.
Impact of the Switch from a Supply- to a Demand-ConstrainedEconomy ....
of former CMEA Sales to the OECD? ...................
VI.
Is the Export Expansion to the OECD Sustainable? ............
VI.
Conclusion .32
Refe.ces
......
...............
The Reversal in CEE-3 Export Performance: Some Preliminary Hypotheses ....
V.
3
................
.34
Statiical Appendx .37
...............
....
25
30
Tables
1.
Share of CEE-5 in Total Imports of OECD, by Major Product Categories, i980-89 ........
2.
Growth Rates of (A) CEE-5 Exports to the OECD, by commodity groups, and (B) Change in Shares
of CEE-5 Exports in OECD Imports, by commodity groups (1981-89)
3.
6
.1
Ratios of CEE-5 Export Growth Rates to OECD Import Growth Rates, by Product Categories, 1981-
83 to 1990-91.10
4.
The Role of Manufactures in the OECD Export Growth of CEE-3, 1989 to 1991 .13
5.
T'e Role of Germany in the Export Growth of CEE-5 in 1990 and 1991 ...
6.
Share of the CEE-5 in German Imports, by Major Product Categories, in 1989 and 1991, and the
.........
14
Percent Change in Share between 1989 and 1991 .15
7.
Ratio of CX1'EAExports to OECD Exports, 1987-91.20
8.
Changes in Value of CEE-4 Exports to FSU, CEE-4, and OECD, 1990 and 1991, (million US$)20
9.
Changing Orientation of Hungarian and Polish Exports of Power Generating Equipment Exports
(SITC. 71) from the FSU to the EC between 1985 and 1991 (million US$) .24
10.
A Summary of Convertibility and Foreign Trade Regimes in the CEE-3 (end of 1991) .....
29
1. INTRODUCTION
Assessingthe exportimpaceof the transformationof the post-communistcountriesis difficult. For
the CEE-5 (Central European Economies:Bulgaria, Czechoslovakia,Hungary, Poland, and Romania)
attributingchangein exportperformanceto a changein a particularpolicyvariableis extremelycomplicated.
First, all variableshave beenin a state of flux; next, in somecaswstoo short a time bas elapsedto makeany
generalizations;and finally, the qualityof tradedata is poor as nationals4tisticalofficeshavenot kept pace
with the expansionof the private sector and the moveto a new customssystem. Predictingthe economie
responsesto a stabilizationpackagein "socialisteconomiesin traasition"is a problem,too, sincemore than
90 percentof industrialoutputcame fromthe state-ownedsector,and organizationalstructuresweredesigned
to facilitateadministrativemanagementby the state rather thanto respondto market signals.
In addition to its organizationallegacies, central planningalso left a legacy of productionand
investmeutpatternsheavilydistortedby the misallocationof resources. Developmentstrategieswt-reinwardoriented, with one exception-investmentdecisionsin the smaller CPEs (centrallyplannedeconomies)were
largelydirectedby the import requirementsof the FSU (the formerSovietUnion). The mismatchbetween
theCPEs' productionstructureand demandin internationalmarketsresultedin their decliningcompetitiveness
in marketsfor manufactures.Consequently,althoughtransformationprogramsmaybringaboutthcnecessary
changesin incentivesand make enterprisesresponsivew externalbusinessopportunities,Cheircapacityto
ccmpete internationallywill be limited for some time because of outdated technologies. It is puzzling,
therefore,to considerwhymanufactureswere thedrivingforcebehindthe exportexpansionto OECDmarkets
from countrieswhich implementedradicaltransformationprograms.
The disintegrationof the CMEA(Councilfor MutualEconomicAssistance')inflicteda severeshock
on all CMEAmembereconomies,includingtheFSU which"..was hurt morethan it gained"(ECE1992:104).
The sudden switch from the soft transferableruble (fR) to the hard currency settlementmechanism,
accompaniedby thefall in Sovietoil output,changeddramaticallytheexternalpositionof the formerCMEA
economies. Sectorsthat had been developedto serve the intra-CMEAdivisionof laborhave faced a major
contractionin demandfor their products. Thesesectors, togetherwith those establishedfor politicalrather
thac economicreasons, accountedfor a considerableportionof the industrialoutputof the former CMEA
region. Thispaperaddressesthe questionof the extentto whichthe contractionin intra-CMEAtrade resulted
in the switchingo- exportsfrom the CMEAtoward the OECD.
The sizeof the exportsectorin overalleconomicactivityhas significantlyincreasedin onlythe three
most reformedcountries (CEE-3)--theFCSK (the former Czechoslovakia),Hungary and Poland. This
I TheCMEAwasofficiallydissolvedat its 46thgeneralmeetingon June28, 1991. Its memb .B included
GermanDemocraticRepublic,Hungary,Mongolia,Poland,Romania,Soviet
Bulgaria,Cuba, Czechoslovakia,
Unionand Vietnam.
2
increasedshare has been due to both the continuedcontractionof GDP (and an even larger contractionin
industrialoutput)and the expansionof exportsto the OECD. Availableevidencesuggeststhat the export
expansi,a in OECD marketswas to some extent propeLledby redirectionof sales from the CMEA. The
declinein the value of intra-CMEAexports was in absoluteterms equal to the increase in exports to the
OECD,especiallyin the case of the most reformedCEE-3economies.
The sustainabilityof the change in the trade pattem is unsure. For the short term, the export
expansionappearsto be sustainable--thedrop in domesticdemand,the improvedacuessto OECDmarkets,
the liberalizationof foreigntrade regimes,and the movetowardconvertibilityof domesticcurrencieshave
provideda strong stimulusto firms -i look for externalmarketsfor their products. Medium-to long-term
prospects, however, remain uncertain. The fall in investmentand industrialoutput so far has not been
reversed-- not one countryin Central Europehas shownsignsof recovery,with the possibleexceptionof
Hungaryand Polandin 1992. With the generalcontracticnin investmenta-idthe cor-tinuedambivalencein
the situationof SOEs (state-ownedenterprises),there is a dangerthat even so-farsuccessfulexport-oriented
SOEsmay refrainfrom investments.Further constraintsto investmentincludethe poorly developedbanking
sector,the lack of iustitutionalinfrastructuresupportingforeigntrade, and ambiguitiesin propertyrightsand
sectormay be less
in the organizationalstatusof manySOEs. Moreover,the shift of resourcesto the ex
than it would be with profit-orientedfirms.2 If SOEs use export proceedsto increasewages rather than
profits, a likely developmentin labor-managedSOEs, their futurecompetitivenessmay be jeopardized. In
the longerrun, a sustainedexportperformanceand integrationwith theworld economywilldependon many
factors including macroeconomicpolicies, exchangerate policy, foreign direct investmentinflows antd
domesticsavings,as well as on the developmentof an institutionalenvironmentenhancingmicroeconomic
efficiency.
This paper addressesthe questionof the impactof the marke:transitionon the exportperformance
of Central Eumpeaneconomiesby takinga broad look at developmentsboth in the foreigntrade regimesof
the CEE-5and their exportperformancein OECDmarkets. It begins by assessingwhere these economies
are in terms of institutionalchangein their foreigntrade regimes. It then providesan overviewof export
performanceof the CEE-Sin OECDmarketsin the 1980-91period,specificallyaddressingthe issue of the
impactof movingto a marketeconomy. It showsthatan increasein penetrationof OECDmarket vasdriven
by the changein domesticeconomicsystemsrather than by externalfactors such as the breakdownof the
CMEA or the emergenceof cooperativeeconomicrelationsbetweenthe CEE-5 and OECD economies.
Followingthe collapseof centralplanning,OECDgovernmentsintroducedmeasuresimprovingmarketaccess
2 Withoute 4etailedanalys' capitalinvestments
disaggregated
to the levelof firms,it is impossible
to assessthe extentto wzmich
the strue., of exportskeepson beingregenerated.
-
3
for the CEE-5. It is argued, however,that OSP (GeneralSystemof Preferences)status grantedby the EC
to Hungaryand Poland (effectivein 1990),increasedEC quotas for textilesand clothingor MFN status in
the UnitedStatesdo not providea fuil explanationof the increasein exports. The exportperformanceof the
Central European "troika'--the FCSK, Hungar, dnd Polard--wasparticularlyimpressivein the 1990-91
in OECDmarkets,especiallyfor manufactured
period,whena long-termtrend of progressivemnaginalization
goods,was reversed. Is this thebeginningof a newtrendto expandingintegrationwith the worldeconomy;
This questionis addressedonly tangentially;moreresearchis neededon the anatomyof the exportupswing
followingthe collapseof centralplanning.
II. LIMITSTO CHANGESIN FOREIGNTRADEREGIMESUNDER CENTRALfLANNING
The reform of foreign trade regimes began well before thc collapse of the CEE-5 communist
governmentsin 1989and 1990. In fact, foreigntrade was an area where much policyexperimentationhad
taken place in the 1980s. The generalapproachtaken bv communistreformersincludedlinkingdomestic
and internationalmarkets,bypassing
directlinksbetweenent*erprises
pricesto internationalprices; estab)lishing
the traditionalforeigntrade organizations;establishinga largernumbero! intermediarieswitha lessrestricted
tradingprofile; .M.*ducingcurrencyauctioaIs;and reducingthe numberof exchangeratesand devaluingthem
to morerealstic levels. Whilethesemear: es contributedto a proliferationof marketingexpertiseat the level
of enterprisesand providedincentivesto boostexports,they failedto introduce"... marketclearingat single
prices withoutexp( i and ad hoc subsidiesand levies,yieldinga profitwhichis retainedby enterprisesor losses
whichpenalizethem'(Nuti1991:50).
Thus, no matterhow radicalthe reformmeasureswere, foreigntrade regimesundercentralplanning
insulatingdomesticproducersfromthe impactof
remaineda sourceof enormousdistort.Jnsand inefficiencies,
changesin relativepricesin worldmarketsand fallingshortof makingforeigntradean effectiveconveyorof
efficiencystandards.Whatwasneededto achievethisend was:theremovalof anti-exportbiasessuch
international
allocationof raw materialsand foreignexchange,and price controls;the
as importrestrictions,administrative
exportsanddiscourag-imports;andtheelimination
designedto encourage
mechanisms
of administrative
dismantling
of 'soft-budgets'for enterprises(so thatinefficientproducerswouldbe penalized).However,thesechangeswere
not possiblewithoutabandoningcentralplanning.
of foreigntraderegimesmademostprogressin
the decentraLzation
Beforethecollapseof communism,
Hungaryand Poland-theywerebothhighlyindebtedto theWestand werethefirstto seekto orienttheireconomies
awayfromtheCMEA(HillmanandSchnytzer,1992:253).Withthedeclineof theSovietcapabilityto sustainintraCMEAtrade in the late 1980s,other CEE-5countriesundertookforeigntrade reformsbut these were less
thanthoseof Hungaryand Poland. Foreign uadereformssharedtwosets of featres. Thefirst
comprehensive
4
set includedallowingSOEsto conductforeigntrade, thuseroding the statemonopolycf foreigntrade. For instance,
in 1986 the Hungarian governmentadoptedthe principleof 'parallel' tra,. licenses. Trade licenseswere no longer
granted exclusivelyto domimantexportersand importers. They were made availableto all firms and covered most
products. As a result, the number of firms operating in internatioral marketsdramaticallyincreased by the end of
the 1980s.3 In Polamd,significantsteps to dismantlethe state monopolyof foreign trade were undertakenin the
early 1980swhen the authorities liberal;zed conditionsto obtain foreigntrade licenses.Between 1982and 1985,the
number of SOEs empowered to conduct foreigntrade opemtion- it4reased from 109 to 361. By the end of the
1980s,the smatemonopoly was abrogated(Olechowskiand Oles, 1991:156and 158).
The second set of featuresof foreigntradereforms includedcreating:ncentivesfor SOEs to expandexports
through hard currency retention schemesand exchange rate policy. The latter consistedessentiallyof a series of
devaluationstowards more realistic rates. Between 1980 and 1985, the Polish real exchange rate depreciatedby
30 percent, and the Hungarianrate by 11 percent (Roe and Roy, 1989:6). The exchange rate policy had a more
significantimpacton export pcformance once SOEswere allowedto retain some portionof their foreignexchange
earnings. Polish exporters who were allowedto retain 25-30 percent of their foreignexchanveearningsresponded
to a substantialdevaluation of the Polish zloty in late 1987 by increasingsxports-the 17.4 percent increase in
convertible currency exports in 1988 was attributable to the devaluation (Winiecki, 1991). Retention schemes
amountedto limited convertibility. In Hungary - 2)89 import liberalizationpackagecomprisingabout 35 percent
(subsequentlyextendedin 1990 to include65-70percent)of Hungary's hard-crrency imports,combinedwithjointventures laws allowing profit repatriationabroad, introduceda limitedconvertibilityto Hungarian currency.
While these cnanges in the foreigntrade regimesreduced the insulationof enterprises from iuternatioral
markets, almost full protection of SCEs from internationalcompetitionwas retained.4
Not even in Hungary or
operasionshada positiveor negative
Poland did the trade regime offer any clue as to whetherdomestically-profitable
of Hungaryand Poland in OECD
valueadded at world prices. Nonetheiess,as we shall see, the export performan(*e
markets was significantlybetter than that of other CEE-5 economies, suggestingthe existenceof a positive link
between foreign trade reforms and export performance.
In other CEE-5 countries,with the exceptionof Romania, there was also a lot of activity in foreigLtrade
policy but little that was effective. The currencywas devaluedin the FCSK (by 19 percent in 1989)and in Bulgaria
(by a factor of 12 in 1989!). Bulgarianexporters were allowed to retain 60 percent of their export earnings.
Auctionsof foreigncurrency were organizedin Bulgariaand the FCSK. These measureshad a more limitedimpact
on foreign trade than similar measures in Hungary and Poland for o'ie major reason: SOEs in Bulgariaand the
3
For a review, see Mizsei (1991:15-20).
4 For a brief discussionof the Polish foreign trade regime in the late 1980s, see World Bank, Poland:
EconomicMmnagementfor A New Era (1990).
5
FCSK wem much more adminiive
units of the state than their coun parts in Hungary and Poland. Even so,
SOEs in all CEE-5 economicsoperatedin an administrativeenvironmentdevoid of competition, market clearing
prices, freedom of entry, and a final penalty fa: poor performance, i.e., bankruptcy. For all, foreign trade
equalizationschemes provideda buffer betweendomesticproducers and world prices.
The major lesson that can be drawn from these attemptedreforms of fcreign trade regimes under central
plarning is that their impact on export performance and competitivenesswas limited while an administrative
economicsystem remained. Withthe colLpse of the communistregimesit becamepoliticallypossible to dismantle
cntral planning(or whatever was left of it) and establishan economicsystem basedon market-clearingprices and
competitionamong autonomouseconomicunits. However, the results of the collapse of communismvaried with
the pace of 'system replacement"pursuedin differentCEE-5countries. Hungary followeda 'shock minimization'
approach, Poland and the FCSK adopted radical programs in January 1990 and 1991 respectively, and two
latecomers, Bulgaria and Romania, began introducingreform measures throughout 1991 and early 1992. As we
shaUsee, the (Ufferentpaces reflected to some degree earlier expressed attitudes towardsreform.
1a. CEE-S EXPORTSTO THE OECD IN THE 1980s: THE INITJALBREAKDOW'NAND GROWING
MARGINAUZATION
This section provides backgroundfor the assessmentof export perforn_... of the CEE-5 economies
followingthe collapseof communism. Since the objectiveis to identify major trends in their ompetitiveposition
between 1980and 1989, aud to assessthe degree to whichtheir exportperformance in 1990-91representeda break
with the past, the analysis in this section is limited to the followingbroad commoditycategories: foods and feeds
(..ITC Rev.2. 0+1+22+4); raw materials (SITC Rev.2. 2-22-27-28);mineral fuels (SlTC Rev.2. 3); ores and
metals(SlTC Rev.2. 27+28+68); and manufactures(SITC. Rev. 2. 5+6+7+8-68).
In order to minimizewell-
known problems conceniing the qua,ity or statisticalinformationfrom this region, the analysis of CEE-¶ expore
performance in OECD markets is based on import data of OECD countries. The analysis covers European and
North AmericanOECD membersand Japan.'
A. An Overviowof Major Tendenciesin Exort Performance
No matter how vigorouslythe various communistgovernmentspursued reform policies the foreigntrade
performanceof individualcountriesrevealed disturbingsimilarities. First, despite govemments' efforts to reverse
decliningcompetitivenessevidentin the 1970s(Pozmaski, 1988), the competitiveposition of all CEE-5countris
in OECD markets dropped significantlyfurther in the 1980s. The competitiveposition of all CEE-5 economies,
5 The analysis does not cover all OECDmembers. It includesten members of the European Communities
(i.e., excluding Greece and Portugal), all membersof the European Free Trade Association(Austria, Finland,
Iceland, Norway, Swedenand Switzerland),North America(USA and Canada), and Japan.
6
as measuredby annualchangesin their sharesin totalimportsof OECDcountries,fell each year in the 1980s
excoptin 1984.6Theiraveragaannualexportgrowthratewas2.9 percentwhiletheaveragefor allOECDimports
was5.6 pementin 1981-89.As canbe seenfromTable1, theCaE-Ssharein totalOECDimportsfellfrom 1.1
percentin 1980to 0.9 percentin 1989:In 1989the region'stolal xp"rts to theCECDstoodat threequartersof
their 1980level.
Table : Shiareof CEE-5in Totat lIports of OCE, by Major Pros.ct Categories, 1980-89
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 190
1.3
0.8
1.3
1.3
1.0
1.1
Foodsand Feeds
1.5
1.0
mlnerat Fuels
Ores & NonferrousMotals 1.4
1.3
0.8
1.2
RawMaterials
Manufactures
1.8
1.1
1.7
1.0
;.7
0.9
1.7
0.8
Total lports
1.15
0.99
0.95
0.95
1.3
1.3
1.4
1.7
0.8
1.4
1.3
1.4
1.4
1.6
1.3
1.02
1.6
0.7
1.6
1.3
1.2
1.4
0.7
1.6
0.9
1.3
1.6
0.8
i.7
0.90
0.88
0.91
1.8c
1.4
1.6
1.3
1.4
1.5
1.4
1.8
0.8
1.9
0.7
0.98
0.95 0.94
1.7
0.7
1991
1.5
0.8
1.5
0.9
data base.
Source: Derived from the United Nations CONTRADE
The sharesof Bulgaria,the FCSKand Polandin total OECDimportsreachedtheirpeakin 190, and
Roma¢
peak was in 1984 (at the height of Ceaucescu'spolicy of payingoff the external debt, which
eventuallydestroyedthe Romanianeconomy). lungary,whichrevivedits reformeffortafterjoiningthe12u
and the World Bankin 1982, failedto noticeablyimproveits competitvepositionbetween1980and 1989.
The two Balkancountriesexperiencedthe largestdeteriorationin exportperformancein the 1980s:in 1989
Bulgaria'sshare stood at 57.3 percent and Romania'sat 58.8 percentof their respectivepeak performance
years. A smallerloss of OECDmarketshare was experiencedby the FCSK,whoseshare in 1939was 80.5
percentof its 1980level, and Poland, whose1989share was 69.6 percentof its 1980 level.'
The second disturbingtrend for the CEE-5economieswas the growingmarginalizationof CEE-5
suppliersin OECDmarketsin the 1980s. Thiswas manifestnot only in fallingshares in OECDimportsbut
also in largeannualfluctuationsin theirexports,revealingtheirhighvulnerabilityto swingsin OECDbusiness
cycles,especiallyduring periodsof recession. The cyclicalcontractionin OECDimportdemandfor CEE-5
products tended to be larger than for exports from other countrieswith two notable exceptions:ores and
nonferrousmetalsand mineralfuels. The considerableannr fluctuationsin CEE-5exports to the OECDin
-
for
the 1980salso testifiedto their lackof long-termcommercialcontact. The rangeof variationwas smaUler
6 Thistemporaryimprovement
wasmainlydueto a one-timeincreasein RomanianexportsacrossaUmajor
productcategories.However,subsequentyearswitnesseda dramaticcontractionin Romananexports.
7 Somecountriesfared slightlybetterin EC markets:the declinein the EC importshareof CzechoSlovakia,Polandand Romaniawas lowerthanfor otherOECDmarkets.
7
exportsto the EC than to otherOECDparrners,althoughthe latter's share in CEE-5exports increasedin the
1980s.'
Lhe third cause of
concernfor the CEE-5was that the region's comparativeadvantagertnmainedin
food and natural resource-intensiveproducts, as revealediu its exports to OECD markets (see Table 3).
Further, its positionas a marginalsupplier of resource-intensiveproducts becameincreasinglyapparent
throughoutthe1980s,reflectingthe rapidlyexpandingtechnologicalgap betweenEastand West. Theregion's
competitiveposition iriproved in mineral fuels only. In other markets, the CEE-5 lost shares to more
cowpetiuvesuppliers. Althoughthe averagerate of growthof sharesof the CEE-5in OECDimportsof ores
and nonferrousmetalsand raw materialsfell in the 1981-89period,the contractionwas smallerthan in total
production.
imports,revealingthesecountries'continuedspecializationin lowvalue-added,resource-intemsive
The key points evidentfrom the data in Table 2 are that whileCEE-Sexports to the OECDgrewv
acoss most commoditygroups,their sharesof OECDmarketstendedto decline,and that this fal in market
snare was greatestin manufactures(in 1V89,manufactures'share was 62.6percentof its peaklevel in 1980).
Hungary'sdistinctivedeclinein manufactures'exportsto the OECDwas part of a gene !' shift away from
manufacturesin both OECDmarket sharesand exportrevenuecomposition.
Otherinterestingpointsto en.
. from Table2 are thegrowingimportanceof agriculturalproducts
in the exportrevenuesof the FCSKand Poland,of raw materialsin the exportrevenuesof Bulgaria,and of
ores and nonferrousmetals for Romsana. Also notableis the fact that Pola-d's and Bulgaria's shares of
OECDmarketsfor ores and nonferrous ietalsdisplayeda negativetrend throughoutthe 1980s.
Tabte 2:
Wd (B) Chanes in Share
Growth Ratesof (A) CEE-5Exports to the ECD, by comodity rop
of CEE-5Exports in OECO Imports, by commoditygrops (1981-1989, percent)
CEE-5
(A)
t8)
Foods and Feeds
"ineralFuels
Orea&Nonferrous
Metals
Raw Materials
Manufactures
2.1
-3.9
0.4
6.2
1.4
-0.5
4,8
-0.5
-1.5
-5.0
Bulcaria Czechoslovakia Hungary
(A) (9)
(A) CB) (A)
CB)
2.6
-4.1
1.3
10.3
1.0
-2.2 4.8
1.3 -5.1
-4.9 3.5
4.2 -1.4
-8.3 0.8
3.8
3.5
2.9
-2.0
-5.0
-0.2 1.2
3.4
8.9
2.8
4.9
1.8
3.6
-0.1 -3.3
Poland
(A)
(B)
4.5
-3.5
-1.7
-2.9
2.4
2.7
5.7
-3.4
-5.3
-4.8
Romania
(A)
(C)
-5.8 -8.6
-1.5
8.0
17.4 15.6
-5.8 -11.2
2.5 -5.8
Source:See Table1.
s ]EC-10's
sharefellfromaround70percentin the 1980-83periodto an averageof 68percentin the 198489 period. Theshareof EC-10increasedslightlyfor onlytwocountriesbetweenthetwoperiods:Czechoslovakia
(from67.2 percentto 68.4perceut)andPoland(from68.5percentto 70.3percet). Theseincreasesweretoosmall
to offsetthereorientation
of Hungary'sexports(from68.3percentto 63 percent)and Romia's exports(from72
percentto 68 percent)(Calculatedfromthe UN COMTRADE
database).
8
The declinewasparticularlysurprisingin the caseof the CentralEuropeantroika.9 The FCSK,once
a renowned exporter of machinotools and other high quality industrial products, became increasingly
specializedin agriculturalproductsand ores and nonferrousmetals. Poland,thanksto Westerncredits, had
a relativelymodernindustrialbase on the eve of the 1980s,but experiencedthe second largestloss among
the CEE-5in share of OECDmarketsfor manufacturedproducts. Henceits investmentdrive in the 1970s
had no discernibleimpacton its internationalcompetitiveposition. Hungary,a countrymuchpraisedfor its
reformeffortsin the 1980s,tendedto shift away from manufacturesand food productsto mineralsand raw
materials,althoughits relativecompetitivepositionfeli the least amongthe CEE-5in the 1981-89period.
B. Two DistinctPhases:Breakdownand PrecariousRecovery
An examinationof the CEE-5OECDexportperformancein the 1980ssuggeststhe existenceof two
distinctperiods. The first, between1980and 1983, can be called a "breakdown"period; the contractionin
OECDimportdemandresultedin a much largerfall in exportsfromthe CEF-5. The second,between1984
and 1989, can be describedas a periodof stagnationand "progressivemarginalization"of the CEE-5region
in OECD markets. Despitethe expandingimportdemandin OECDcountries,especiallyfor manufactured
products,communistgovernments'efforts to boost exportsproduced -Ited results.
Thefirst periodcoincidedwithOECDrecessionand withdeteriorationin East-Westpoliticalrelations.
Total OECDimportsfell at an annualaveragerate of around4 percentin the 1981-84period, reachingtheir
lowest point in 1982when they fell by 6.2 percent. However,the fail in CEE-5 exportswas significantly
larger than the declinein OECDimportdemandoverall.'° The latterfell by around 12 percent in aggregate
over this period,while CEE-5exportsdeclinedby nearly30 percent.
As can be seen from Table 3, during 1981-83all exports with the exceptionof mineral fuels
contractedmuchmore than OECDimports. The most affectedwere manufactures:the ratio of the average
annual(negative)growthrate of CEE-5exportsto the OECDimport (negative)growthrate was 7.12. There
were only a few bright spots: all CEE-5economiesrecordeda lower fall in exportsof mineralfuels (as a
result, their market shares for fuels increased);Czechoslovakexports of agriculturalproducts increased;
Hungarysubstantiallyexpandedits exports of raw materialsand mineralfuels; and RomaniaincreasedIts
exportsof ores and nonferrousmetals. Bulgaria'sand especiallyPoland's exports collapsedin all product
9 The worstperformerwasBulgaria,whosesharein 1989in totalOECDimportsof manufactured
goods
was5'.3 percentlowerthanin thepeakyearof 1980. Romana'ssharedroppedby 41 percentin comparisonwith
its peakyearin 1980,Poland'sby 40.4 percent,Czechoslovakia's
by 27percent,and Hungary'sby 28.3perment.
10 Forthisreason,thedatafor 1983or 1984is usedas thebasein theinter-temporal
comparative
analysis.
9
categoriesexceptfor mineralfuels.
Whilethe fail in CEE-Sexportsto the OECDin the early 1980swas attributedto the recessionin the
OECDand the deteriorationin East-Westpoliticalrelations," in the second half of the 1980sEast-West
relationsceasedto be an activeconstrainton commercialrelations. Yet CEE-Sexportsdid not recover.
Bythe end of the 1980s,despitedomesticpoliticalpressuresto expandexportsto obtainmuch-needed
hard currency,CEE-5exportersfailed to recapturethe lossesin market sharesthat they had sufferedduring
thebreakdownperiod. As canbe seen from Table3, the growthin the total exportsof CEE-5feil behindthat
of totalOECDimportdemandon averageby around12percentannually,mainlybecauseof poorperformance
in manufacturesexports. The CEE-S region improvedits position in OECD markets vis-a-vis other
competitorsin food, mineralfuels and metals,with the highestratio beingfor mineralfuels; OECDImport
demandwas fallingat an annualaveragerate of 3.2 percent,whileexportsfrom the CEE-5were increasing
by 1 percentper annum. Agriculturaland ores/nonferrousmetalsexports also increasedat rateshigherthan
the growthin importdemand. Both of these productcategorieshad registereda significantloss in OECD
marketsharesduringthebreakdownperiod,but bothsubsequentlyregainedtheir 1980marketshare. Hungary
and Poland increased their presence in OECD markets, while Bulgaria's and Romania's shares fell
zipitouslyin the secondperiod. The FCSKalsoexperienceda loss in marketshare, thougha sma.
ass
than the two Ralkancountries.
Hungary'sand Poland'sexportperformancestandsout. Their effortsto reformtheirtradingregimes
and expandtheir trade links with the OECD,both precipitatedby sign!ficantsovereigndebt accruedin the
1970s, were impressive by CEE-5 standards, though not by the standards of other exporters. While their
sharesin total CEE-5exportsfell duringthebreakdownperiod,it increasedsignificantlyin the secondperiod-from 49 percentin 1983to 56 percent in 1989. Polandretainedits positionas the largestCEE-5exporter
to the OECD(32percentin 1989),whileHungarybecamethe secondlargest exporter(24 percentin 1989);
the sharesof the FCSKand Romaniafeil from 23 to 21 percentand 23 to 19 percent, respectively,between
1983and 1989.
The movetoward the statusof a supplierof nonrenewable,natural resource-intensive
productswas
most pronouncedfor the FCSK and the Ralkancountriesand least for Hungaryand Poland. Hungaryand
11 RelationswereespeciaUyadversarialin the early 1980sfollowingthe Sovietinvasionof Afghanistan
in December1979and the impositionof martiallaw in Polandin Decemberof 1981. Oneof thelargestdeclines
wasin Polishexportsduringthe Solidarityperiodin 1981. Polishexports,whichaccountedfor about35 percent
of theCEE-5total,fell by 35 percentin 1981.
10
Poland increased their share in CEE-5 exports of manufactures, with Poland registering the largest increase.'2
Poland took Hungary's position as the largest exporter of agricultural producs: its share rose from 35 percent
in 1984 to 41 percent in 1989, while Hungary's share fell from 37 percent to 35 percent. The FCSK
Increased its dominance as the largest exporter of raw materials and increased its share in all product
categories except manufactures. Romaia's share declined steeply in all product categories except ores and
nonferrous metals. So did Bulgaria's share, with the exception of raw materials.
TabLe3: Ratiosof CEE-SExportGroithRatesto OECDImportGrowthRatesby
ProdutCateories, 1981-83to 1990-91
1981-83
1984-89
FoodsandFeeds
Mineral
Fuels
OresandNon-Ferrous
Netals
RawMaterials
Manufactures
2.35*
0.74*
1.46*
1.31*
7.12*
TotalExports
2.31*
1.42
-0.30*
1.19
0.70
0.80
0.88
Czechoslovakia
Note:
1984-89
1990-91
1.14
-0.98
-4.07*
-0.77*
2.72
2.15*
0.20*
2.26*
1.03^
9.28*
0.82
1.67*
1.02*
1.68
0.56
(-3.89)
-15.98*
4.44*
2.30
1.87
2.46*
0.43
1.54
1.31
-1.97*
1.51
0.97
0.86
1.09
1.42
0.60
-0.51*
-4.53*
2.97
2.37
0.32
-1.16*
2.42
0.44
0.63
0.67
0.91
(-4.13)
11.61*
11.39*
(-1.11)
(-2.56)
.73
Hurma
"
V
0.44*
1.00*
4.18*
1.48*
1.47
0.04*
1.11
0.66
0.63
0.76
Poland
Foods and Feeds
Mineral Fuets
Ores and Non-Ferrous Metals
Raw Materials
Manufactures
Total Exports
1981-83
iBultaria
CEE-5
Foods and Feeds
Mineral Fuels
Ores and Non-FerrousMetals
Raw Materials
Manufactures
Total Exports
1990-91
2.68*
0.53*
1.83'
2.00'
13.52*
3.64*
0.85
(-0.73)
-17.20*
3.25*
3.80
2.92
1.40*
-1.74*
0.73*
-0.31*
5.12*
1.31*
Romania
1.88
-0.09*
0.98
0.62
1.23
1.12
1.26
1.14
-6.95*
-6.11*
4.10
3.09
5.14*
0.10*
-1.31*
2.42'
4.36*
1.56*
*
denotes negative growth rates in OECDimports;
(-) denotes a negative growth rate of CEE-5 exports.
Source: Se; Table 1.
The regional composition of CEE-5 aggregateexports to OECD economies remained relatively stable
throughout the 1980s. The shares going to the EC-10 (68 percent) and the EFTA (18 percent) declined
slightly between the two periods, while the shares going to other OECD counteies increased slightly. These
changes were the result of the redirection of exports away from Europe by Hungary and Romania.
12 Poland's share rose from 21 to 27 perceat between 1984and 1989, whilo Hungary's share increased
from 21 to 24 percent. The FCSK, which remained the second largest exporter of manufacturesin the CEE-S
region in the 1984-89 period, registered a fall from 26 to 25 percent.
11
The picturethat emergesfrom this analysiscanbe summa'zed as foilows:(i) the exportperformance
of the CEE-Swas very unimpressivein the 1980sdespiteefforts lt reformingforeigntrade regimesunder
central planning;(ii) the declinein their competitivepositionin OECD markets, already observed in the
1970s,continuedthrough the 1980s;(iii) the contractionin their prmence in OECD markets, particularly
notablein the early 1980s,wasnot reversed;(iv)their exportswere extremelyvulnerableto changesin OECD
importdemand;(v)the commoditycompositionof exportsshiftedtowardlowvalue-added,resource-intensive
products;and (vi) the role of OECDcountriesotherthan the EC-10 and ETrA remainedmarginalfor the
CEE-5 except for Romania.The symptomsof a deep structural crisis wvte clearlyvisible in their export
performancein the OECD. Againstthis dismal ovexalipicture, the export performanceof the two most
reformedCPEs, Hungaryand Poland, was significantlybetter.
IV. THE EXPORTUPSWING:IN DEFIANCEOF PAST TRENDS
The extrapolationof export trends characteristicof the 1984-89period would yield the following
predictionsfor the CEE-S in the 1990s: the region's share in OECD exports would continue slipping,
especially in manufactures;their export profile would continue moving to agricultural products and
nonrenewablenaturalresources;Poland'sandHungary'spositit. ,nongthe CEE-5wouldcontinueimproving
althoughat an unevenpace;the FCSK'srelativepositionwouldcontinuedeclining,albeitat a slowerratethan
that of Bulgariaand Romania;the weightof the latter two countriesin CEE-5exportsand OECDimports
would continue shrinling; and the reliance on EC-10 markets would slowly increase. In addition, the
contractionin investmentactivity throughoutthe region in the 1980s and the poor match between its
investment/production
patternsand internationalmarketswouldgive extra credibilityto the forecastof no
significantimprovementin exportperformancein the 1990s. With these expectations,the designersof the
program assumed only a slight increase of hard currency exports
Polish stabilization-cum-adjustment
(Kolodko,1991:13). Yet 1990,the first year afterthe collapseof communistregimes,provedto be a turning
pointin the region's exportperformancein the OECD,initiailyespeciallybecauseof Polishexportexpansion.
AppendixTable 1 summarizesinformationon the exportupswingin 1990and 1991.
A. Challengingthe Proiections
The developmentsin CEE-5exportperformancein the periodimmediatelyfollowingthe collapseof
centralplanningdefied some and confirmedother aspectsof predictionsbased on trends dominantin the
1980s. Whilethe 1990and 1991improvementin the relativepositionof Hungaryand Poland,both among
CEE-Sexportersand in OECDmarkets,and the deteriorationof the exportperformanceof the two Balkan
12
countriescame as no surprise,the pace at whichexportsof Bulgariaand Romaniafell in 1990and those of
Hungaryand Poland rose defiedall predictions. Between1984-89and 1990-91,the share of Bulgariaand
Romaniain CEE-5exportsfell from28 percentto below14 percent,mostlybecauseof the collapseof exports
of oil and manufacturedproducts. At the sametime, the share of Hungaryand Polandin total CEE-5exports
to the OECDincreasedfrom around51 percent in the 1984-89period to 64 percentin the 1990-91period,
mainlybecauseof the expansionof manufacturedexports.
Contraryto expectations,theshare of the regionin total OECDimportdemandincreasedin both 1990
and 1991thanksto exportexpansionby the CentralEuropeantroikawhoseshare in CEE-5exportsincreased
from an averageof 72 percent in the 1984-89periodto 80 percentin 1991. The increasewas mainlythe
resultof the reversal of two trends-stagnatingCzechoslovakexportsand decliilng regionalcompetitiveness
in manufactures.The FCSK's exportssoared in 1991(see columnb of AppendixTable 1), and the share of
CEE-5manufacturesin OECDimportsincreasedin both 1990and 1991. Sincethesharesin OECDmarkets
for raw materialsand especiallyfor foodsand feedsand oresand nonferrousmetalsalso increased,whilethat
for mineralfuels and raw materialscontracted,the region's export profilecontinuedto be characterizedby
a heavyrelianceon naturalresource-intensiveproducts,though it has been somewhatattenuated(see Table
1).
B. ReformsMake a Difference
The developmentsin CEE-5 exportperformancein the 1990-91period sharpenedthe differences
betweenthe most reformedeconomiesof the CentralEuropeantroika (theCEE-3)and the Balkancountries
(Bulgariaand Romania). The lattergroupwas not only marginalizedvis-a-visthe CEE-3in OECDmarkets,
but its exportprofile shiftedtowardslow value-addedproducts.
The collapseof Romania'sexports in 1990and 1991reflectedthe accelerationof a tendencythat
beganin the mid-1980s. In 1991,the valueof Romanianexportsto the OECDwas almost50 percent lower
than in 1987. By comparison,Czechoslovak,Hungarianand Polishexportsexpandedat doubledigit growth
rates in 1990and 1991. Contary to expecaions, the drivingforce of the troika export boom in OECD
marketswas manufactures. Their share in OECDmanufacturesimportdemand,though still insignificant,
increasedby 41 percent from an averageof 0.5 percentin 1984-89to 0.7 percentin 1990-91.
As Table4 shows,manufacturesaccountedfor 80 percentof the increasein the valueof totalexports
of the CEE-3between1989and 1991. Exportsof manufacturesaccountedfor morethan 100percentof the
increasein Czechoslovakexportsin 1990and for 96 percentof the increasefor 1990and 1991together. A
detailed accountof manufacturedgoods' successstories in OECDmarketshas not been developedso far.
However, a summaryexaminationof Polish data suggeststhat importantitems in the Polish exportdrive
13
included garments, cinemicals(organic and inorganic, polymerizationproducts, wood- and resin-based
chemicalproducts),paper and productsof paper, textileyams, non-metallicmineralmanufactures(cement,
lime, fabricatedconstructionmaterials,mineralmanufactures,glassware,pottery),iron and steelproducts(pig
iron, ingots, rails), manufactres of metal (hangars, householdequipmentof base metals), specialized
machinery(machinetools), mechanicalhandlingequipment(cranes,works trucks),householdtypeelectrical
and non-electricalequipment,non-motorizedtrailer and other vehicles, and ships and boats.-3 At first
glance,it seemsthat no majorshift in revealedcomparativeadvantagefor manufacturesoccurredin the 198991 periodas comparedwith the 1984-89period.
The Rlot of Nuwmfactures in the OECD Export Growth of CEE-3, 1989 to 1991
Table 4:
Value
(mill.US$)
Increasein value
(mill.USS)
Shareof Manufactures
in
lncrease in Total Exports
(in percent)
1989-90
1990-91
1989-90 1990-91
1989
1990
1991
3924
45S5
6270
661
1685
2545
3218
4788
673
1570
102
93
res
4359
2420
5511
3347
6451
4035
1152
927
940
686
---81
....
73
TotalExport
Exports of Manufactures
5879
2771
8436
4390
9546
5388
2557
1619
1110
998
----
63
....
90
14162
7736
18531
10955
22268
14210
4369
3219
3737
3255
74
80
Czechoslovakia
Total Exports
Exports of Manufactures
---
-
--
-
Hunaarv
TotalExports
Exportsof Manul
TotalCEE-
TotalExports
Exports of Manufactures
SOURCE:See Table I
The increase in CEE-3 exports is truly astoundingconsideringtheir export performance and
investmentpolicies in the 1980s,the fact that SOEs were mainly responsiblefor the increasedexports of
manufactures,and also that the CEE-3 did not have export supportinginstitutionssimilar to Hermes in
Germanyor Ex-ImBank in the UnitedStates. More detailedanalysisis warranted.
C. Germany:Locomotiveof CEE-SExoortGrowth
During the export growth of 1990-91,the geographicpattern of CEE-S exports changed, with a
movementtowardsEuropeanmarketsin generaland Germanyin particular. The shift of CEE-5exportsto
the EC-10beganin the late 1980sand was amplifiedin the 1990-91period;the share of the EC-10in CE-S
13 For a detailedanalysis,see Kaminsli,1993:7-8.
14
total exportsincreasedfrom 68 percentin 1984-89to 73 percentin 990 and to 77 percentin 1991. The main
engineof CEE-5exportgrowthwas Germany(seeTable S)--excludingGermany,the EC marketsfor Central
Europeanproductsstagnatedin 1991. The share of Germanyin CEE-S exportsto the EC-10 substantially
increasedfor all countriesexceptHungary,and the shareof Germanyin total OECDimportsfromthe CEE-S
increasedbetween1989and 1990by almost50 percent--from34 percent to 49 percent.
Table 5:
A.
n the Export Grewth of CEE-5 in1990 nd 1991
The Role of Gow
Share of Gerenwyin OED aid EC-10Ixqorts from the CEE-5(in percent)
Bulgaria
1989
23
32
OECD
EC-10
Czechostovakia
1990 1991
27
35
33
42
OECD
EC-1O
B.
32
46
1989
1990
1991
1989
34
43
37
51
49
63
33
55
nia
1990 1991
1989
1990
1991
1989
52
58
14
20
28
37
36
42
33
47
38
50
in Valueof lcowts from CEE
AinnulIncreases
Bulgaria
Germany
excluded)
EC-9 (Germany
OtherOECD
Memorandum:
Share of the increase in
OECD imports absorbed by Germany
(in percent)
Hemorandu: Share of the increase in
OECD pgorts absorbed by Germany
(in percent)
40
58
1990 1991
37
52
45
59
untries(mitt. USS)
Czefhgsloakfe
Hunaarv
1990
1991
1990
1991
1990
1991
72
76
19
76
-10
.9
355
196
110
1388
240
58
598
306
249
553
197
190
43
134
54
82
52
59
Pots
Germany
EC-9 (Germanyexcluded)
Other OECD
1990 1991
37
55
R
Poland
1989
Hunaarv
CEE-3
Romania
1990
1991
1990
1991
1990
1991
1320
928
308
1147
8
-127
-658
-312
40
-186
-240
2273
1431
667
3088
445
203
52
103
52
83
-4
--
--
Source: See Table 1
AlthoughGermanyhas been traditionallythe largest OECDtrading partAerof CentralEurope, its
significanceincreasedfor eachof the CEE-5economiesin 1990and 1991. The share of Germanyin OECD
imports from Romaniasurged from 14 percent in 1989to 52 percent in 1991, mainly becauseexports to
Germanyfell less than to other partners in 1990and they actuallyincreasedin 1991. For Bulgaria,the
increasein sales to Germanfirmsmorethan offsetthe contractionof other OECDmarketsin 1991. German
15
marketsabsorbedabout 54 percent of the increasein exportsfrom the FCSKin 1990, and 82 percentof tbis
increasein 1991. As a result, the share of Germanyin Czechoslovakexports increasedby 15 percentage
points between1989and 1991. TheGermansharein Hungarianexportsto the OECDwas slightlylowerthan
that of other CEE-5countries,but Germanytook three quartersof the increasein Hungarianexports to the
EC in 1991. Poland reorientedits exportsto Germanyin a dramaticfashionin 1991: its exportsin current
prices to EFTA, North Americaand Japan contracted,to other EC-9 countriesstagnated,but to Germany
grew by morethan US$1billion. Germany'sshare in OECDexportsof the troikaincreasedfrom 33 percent
in 1989 to 45 percent in 1991.
Moreover,Germany'ssharein CEE-5exportsto theEC-10increasedsignificantlyin nearlyall major
productcategories. The only exceptionswere ores and nonferrousmetalsfor Czechoslovak,Hungarianand
Romanian exports and raw materials for Hungarianand Rom; . al exports. The largest increases in
Germany's share in exports to the EC were: for Bulgara, mineralfuels (from 7.5 percent in 1989to 62.2
percent in 1991)and raw materials(18.3 percentto 36 percent);for the FCSK, manufactures(43.4 percent
to 61.5 percent)and agriculturalproducts(55.8 percentto 69.6 percent);for Hungary,agriculturalproducts
(37.1 percentto 47.2 percent)and manufactures(56 percentto 62.4 percent);for Poland,mineralfuels (32.5
percentto 54.5 percent)and manufactures(46.5 percentto 59.7 percent);and for Rom.; i, mineralfuels (0.7
percentto 5.6 percent)and agriculturalproducts(40.1 percentto 52.9 perc&-at).
Table 6: Shareof the CEE-5in Gern lmports, by MajorProduct Categories, in 1989an1 1991,and the Percent
Chag in Share betwn 1989an 1991
HUNGARY
CZECHOSLOVAKIA
BULGARIA
1991 Change
1991 Change 1989
1959
1991 Change 1989
in percent
in percent
in percent
Foodsand Feeds
RawMaterials
Ores 2 Non-FerrousMetals
Mineral Fuels
Manufactures
Total all c_oditfes
0.14
0.08
0.06
0.02
0.05
0.07
0.18
0.11
0.24
0.02
0.07
0.08
36
46
309
-5
21
28
POLAND
Foodsand Feeds
RawMaterials
Ores L Non-FerrousMetals
Mineral Fuels
Manufactures
Totat altcoidities
1.38
0.85
1.96
0.80
0.49
0.71
1.50
1.44
3.94
1.16
0.92
1.13
0.46
1.02
0.36
0.99
0.43
0.49
0.52
0.87
0.92
0.60
0.84
0.79
13
-15
153
-40
94
60
R_OANIA
9
70
101
44
87
59
0.15
0.31
0.46
0.03
0.36
0.30
0.12
0.10
0.12
0.03
0.22
0.19
1 01
0.58
047
0.32
0.49
0.53
1.31
0.67
0.52
0.26
0.63
0.66
29
16
11
-18
30
25
3.32
2.98
5.38
2.01
2.39
2.58
17
22
93
-4
69
49
CE-3
-21
-66
-75
10
-37
-38
2.85
2.45
2.79
2.10
1.41
1.73
Source: SeeTable 1.
As a result of the exportexpansionbetween1989and 1991, the competitvepositionof the CEE-S,
except for Romania(whose share fell in all product categoriesexcept for its traditionalexports of oil),
improvedconsiderablyin Germanmarketsfor all majorproductcategorieswiththe exceptionof mineralfuels.
16
As can be seen from Table 6, the troika's share in total Germanimportsincreasedby almost 50 percent,
mainlythanksto exports of manuifactures.The FCSK'sshare in Germanimportsof manufacturedproducts
almost doubled,Poland's share increasedby 87 percent, and Hungary's by 30 percent. Bulgaria. whose
exportsto the OECDstagnatedin the 1989-91period,increasedits share in Germanmarketsby 28 percent.
Themajoritem in the manufacturesexportdriveto Germanywas mac.ineryand transportequipment.
Czechoslovakexportsof machineryand transportequipment(SITC.7) to Germanyincreasedby 56Spercent
(from $101 millionto $663million)and to otherEC-10countries(excludingGermany)by 36 percent (from
$256 millionto $347 million);Polish machineryand transportequipmentexports to Germanyincreasedby
254 percent (from $131 millionto $464 million)and to other EC-10 countriesby 4 percent (from $340 to
$347 million);and Hungarianexports of machineryand transportequipmentto Germanyincreasedby 146
percent (from$229 millionto $564million)and to otherEC-10countriesby 55 percent (from $128to $199
million). Theseexports were previouslyabsorbedmainlyby the FSU.
The expansionof tradewithunifiedGermanywasapparentlynot relatedto commerciallinksinherited
from the GDR's membershipin the CMEA. Exceptfor contractsbetweenthe formerGDR and the FSU, all
ties betweenthe GDR and otherCMEAmemberswere severedand orderscanceled. The dismantlingof the
CMEAsoft p
_nts mechanismat the end of 1990precipitatedthe collapseof trade betweenthe former
GDR and the CEE.5; CEE-5importerswere no longerwillingto spend scarceforeignexchangeon goods
producedin firms of the formerGDR.
The 1990and 1991export drive to Germanyallowedproducersfrom the CEE-3 to regain market
shares they lost in the OECDcountriesduringthe 1980s. Hungaryregainedits 1980peakshare in OECD
importsin 1989, and the FCSK did so in 1992. Despiteits impressivegrowthin 1990and 1991, Poland's
share in 1991was still slightlylower than it was in 1980.
V. THE REVERSALIN CEE-3EXPORTPERFORMANCE:SOMEPREL1MINARY
HYPOTHESES
As arguedearlier, the reversalin CEE-3 exportperformancetrends in OECD marketscannot be
attributedto a bettermatchbetweenCEE-3investmentstrategiesand imrportdemandin internationalmarkets,
becauseincreasedexportscame from productivecapacitiescreatedunder centralplanning. Neithercan it be
explainedby a sudden upsurge of OECD import demand,because CBE-3 producers outperformedother
suppliersand significantlyincreasedtheir marketshares. No massivetransferof state-ownedassets to the
privatesectortook place in 1990and 1991,so theimprovementcannotbe attributedto privately-owned
firms,
more responsiveto market signals. Therefore,ono shouldlook for explanationsin reforms influencingthe
behaviorof economicactors,changesin externalopportunities,and incentivesto export. The objectiveof
this sectionis to identify links betweendomesticand externalcicumstances, on the one hand, and export
17
performance in OECD markets, on the other. The results are tenuous at best, however, as all policy variables
were in a state of flux during the initial stages of the transition from central planning.
The major external factor was the collapse of the CMEA, wl-'*h increased the proportion of aggregate
output no longer demanded in CMEA markets. Goods previously exported to the CMEA became available
for domestic consumption and/or export to other trading partners; in the extreme, production capacities for
unwanted goods would be shut down.14 The major changes in domestic circumstances were the liberalization
of prices and restrictive monetary and fiscalpolicies, together with the introduction of changes in the incentive
structures for SOEs (which remained dominant economic actors during the initial stage of the transition).
These measures produced a shift from a supply- to a demand-constrainedeconomy, to borrow an apt phrase
from Janos Kornai, and led to a dramatic change in the domestic demand structure--a very significant
contraction of demand for some products and some increases for others. The net result, however, was a fall
in aggregate domestic demand.'5 The combination of these changes with the introduction of limited current
account convertibility and liberalization of the foreign trade regime provided incentives to domestic firms to
look for markets abroad.
A. The Collapse of the CMEA
For the period under discussion, the collapse of the CMEA was the only external event with
potentally significant implications for Central European exports to the OECD. Although the change in the
polidcal status of the region vis-a-vis the West clearly had a positive impact on its export performance in 1990
and 1991, this cannot explain the dramatic shift in export patterns. The region's access to OECD markets
did not improve dramadcally, although the extension of GSP (Generalized System of Preferences) treatment
to Central European countries played some role.'6 (it was irrelevant for Romania which had had GSP status,
14 As long as the CMEA-TRsettlementsmechanismexisted, there was also another temporaryoption: a
governmentmight subsidizeits domesticproducersby running a trade surplusin TRs, thereby subsidizinganother
country(or reducingits non-convertiblecurrencydebt). This optionwas pursuedby the Polishgovernmentin 1990,
mainly in its trade with the FSU.
15 For a summaryof factors contributingto the fall in aggregateoutput in Central and Eastern Europe,
see Blejer ard Gelb (1992:1-3).
16 The EC grantedGSP to Hungaryand Poland in 1990, and to Czecho-Slovakiaand Bulgariaon January
1, 1991. Althoughall GSP schemesgranted unilaterallyby industrialcountries excludemajor textile and clothing
products in which the CEE-5 have comparativeadvantage (Erzan, Holmes and Safadi, 1992:26), EC quotas for
imports from the CEE-5 were significantlyraised. In addition,thanksto the GSP status, the simple average tariff
on CEE-5 imports significantlydeclined from around 8 percent in 1988to 1 percent in 1991. Calculatedfrom the
UNCTAD-WorldBank SMART(Softwarefor Market Analysisand Restrictionson Trade) data base.
18
albeit with many specialrestrictions,since 1971, Schumacherand Mobius, 1992:2). The eliminationof
quantitativerestrictionsmaintainedby the EC againstPolandimprovedits market access.'7 Barriersto the
CEE-3economies'traditionallycompetitiveexports, iron, steel, textiles,clothingand agriculturalproducts,
8 Ihe EuropeanAssociationAgreements
remainedin effect in 1991,althoughtheywere not binding.1
signed
with the CEE-3 in December1991were also not relevantfor the 1990-91period,becausetheir provisions
were to be phased in over the 10 years beginningin 1992.'9 Finally, the grantingof MFN status by the
United States did not have a signif atn imnpact;Hungary had MFN status throughoutthe period under
consideration,while Bulgariaand the FCSK obtainedit in 1991; Poland's MFN statusin the UnitedStates
was restoredin 1989,but its trade with the UnitedStatesaccountedfor less than5 percentof its total trade;
and Romania'sMFN status was suspendedin 1988, but its exports were already collapsingfor domestic
reasons. Hence,amongpossibleexternalfactorsaccountingfor shiftsin trade patternsand imnrovedexport
performancein OECDmarkets,the collapseof the CMEAwasthe'mostreltvanteventin the 1990-91period,
overshadowingthe disappearanceof East-Westpoliticaldivisionsin Europe.
The problemof adjustmentto changingconditionswithinthe CMEAemergedmuchearlierthan in
1990. The officialdissolutionof the CMEAwas the result, not the cause, of the rapidlydecliningSoviet
capabilityto sustain "soft"settlementsin intra-CMEAtrade. Thanksto the fallingoil price in intra-CMEA
trade, most CEE-5countriesbeganto run trade surpluseswith the FSUin non-convertibleTRs in 1988. As
a result, trade-relateddebts to the FSU accumulatedby CMEApartnersbetween1975and 1987were "...
suddenlywipedout by 1988"(Lavigne,1990:36). The erosionof Sovietabilityto pay for importsforced
other CMEAgovernmentsto introducevarious measuresrestrainingexports to the FSU and encouraging
exports to hard-currencymarkets. With the collapse of the Soviet ability to maintainTR payments
arrangementsin 199(, CMEA membersbegan switchingfrom TRs to hard currencies in their internal
transactions,whicheventuallyledto the formaldissolutionof the CMEAinternalsettlementsmechanismon
17 Thisdecisioncoincidedwiththe introduction
of the EconomicTransformation
Programon January1,
1990. In addition,the non-specific
quantitativerestrictionsweresuspendeduntilDecember31, 1991.
18 Bilateralquotasimposedby the EC on importsfromCentral/Eastern
Europewerenotvery restrictive,
and their numberhad declinedalready between1985 and 1989. For instance,the numberof Multi-Fiber
Arrangement(MFA)quotasfell from 71 in 1985to 54 in 1989,and around30 percentof them had a quota
utilizationrate lowerthan90 percent(SeeErzanandHolmes,1992). Theimportanceof quotasfor otherproducts
wasalsolimitedbecausetheywererarelyutilized(Rodrick1992:28).
19 Sincethe freetradeprovisions
of 'EuropeAgreements"
becameeffectiveon March1, 1992,theCEE-3
has obtainedduty-freeaccessto ECmarketsfor a widerangeof manufactures.For instance,importsof morethan
50 percentof Polishmanufacturedgoodsare not subjectto barriers(Nogaj,1992). For a discussionof the
Agreements,see Pohland Sorsa,1992.
19
January 1, 1991.A
The level of vulnerability to the collapse of CMEA trade was not uniform among the CEE-5, and the
extent of the shock from the collapse of CMEA trade was also less abrupt than official statistics might suggest.
Since the 1960s, CEE-5 trade with the OECD had tended to increase faster than CMEA trade, despite
declining international competitivenessin manufactures. In the 1980s, the quality of CEE-5 manufactures and
their international competitivenesswas lower than it was in the 1970s (Poznanski, 1988:46-52). The declining
international competitiveness of CEE-5 manufactures forced them to offer industrial products at heavily
discounted prices, which in turn implied a substantial devaluation of the TR relative to the US dollar. The
revalued trade figures suggest a long-term trend of declining shares of the CMEA in CEE-5 total exports.
Between 1970 and 1990, this share fell from 76 percent to 54 percent for Bulgaria, from 64 percent to 37
percent for the FCSK, from 62 percent to 31 percent for Hungary, from 60 percent to 39 percent for
Poland,2" and from 50 percent to 24 percent for Romania.' Hence, although the CMEA and the FSU were
the major trading partners of the CEE-5, a significant redirection of trade to the non-CMEA markets occurred
prior to 1990. Still, the CLE-5 countries were extremely vulnerable to economic developments in the FSU
as the FSU was their single largest trading partner. The Soviet portion of intra-European CMEA trade was
around 70 percent between 1987 and 1990 and 74 percent in 1991, despite the contraction in Soviet imports
and exports.23
Table 7 shows ratios of CMEA (excludingthe former GDR and non-European members) exports to
OECD exports for the CEE-4 (excluding Bulgaria24). The changes in ratios over the 1987-91 period show
that efforts to orient trade away from the CMEA were quite successful and that a dramatic realignment of
-7
By the end of 1990, around 50 percent of CMEA trade was conductedin hard currency, though the
proportionvaried for individualcountries(Rosati, 1992).
21 The share of the former CMEAin Poland's exports (in current prices)fell to 16.9 percent of the total
in 1991, with the FSU accountingfor 11 percent, and Czechoslovakiafor 4.7 percent.
22 For revaluedestimatesof trade of the CEE-5 and the FSU, see Pohl and Sorsa (1992).
23 Calculatedfrom data in IMF Directionof Trade StatisticsYearbook, 1992. Non-Europeanmembers
of the CMEA includedCuba, Mongoliaand Vietnam. The figures do not include Bulgaria, for whichno data on
the trade with the Soviet Union are available in the IMF statistics, or the German DemocraticRepublic, which
ceased to exist as a state.
24 Bulgaria's trade was more orientedtoward the FSU thanthe other CEE-5. The ratios were as follows:
1988- 5.3; 1989 - 5.1; 1990 - 3.6; 1991 - 2.0. Because these data are derived from other sources, they are not
includedin Table 7. The tendencyis the same as for other countries, althoughthe declinewas mainly the result
of the collapse of CMEA exports (they fell from US$4.8 bill. in 1988 to US$2.0 bill. in 1991), and stagnating
exports to the West (their value rose slightlyfrom US$900millionto US$1 billionin 1991).
20
exportpatternshas takenplace since 1987.
Table 7:
Ratio of CMEAExporta to OECDExports, 1967-91
Czechostnvakia Hungary
1987
1988
1989
1990
1991
2.20
2.04
1.73
1.01
0.56
Source:
1.18
0.99
0.78
0.49
0.41
Poland
t.mania
Nemoranduts:
Standard
CEE-3
deviation
0.82
0.91
0.81
0.64
0.51
0.95
1.13
1.06
0.85
0.58
0.54
0.45
0.38
0.20
0.07
1.33
1.25
1.06
0.68
0.49
IMF, Direction of Trade StgtisticsYearbook, 1992.
Table 8 providesadditionalinformationrelatingto the switch from CMEAto OECD markets. It
presentsthe annualchangesin the valueof exportsof the CEE-3and Romaniain 1990and 1991,as well as
between1987and 1991(the periodover whichthe value of intra-CMEAexportswas falling),to the FSU,
Table 8:
Changes in Value of CEE-4 Exports to FSUJ CEE-4. and OECD, 1990 and 1991 (million
Czechostovakia
FSU
CEE-4
OECD
TOTAL
Hungary
Poland
US S)
Romania
1990
1991 TotaL
1988-91
1990
1991
Total
1988-91
1990
1991 Total
1988-91
-1398
-745
661
-1481
-898 -2910
-232 -1007
1685 2910
556 -1007
-482
-243
1152
427
194 -1001
-236 -598
940 2856
898 1257
78
498
2557
3133
335
-834
1110
611
-485
-1282
-1410
1081
-67
4845
5859
1990
-1025
-632
-1097
-2754
1991 Total
1991-88
-572
-310
-387
-1269
-1309
-1164
-1791
-4264
Memorandum:FSII:Balance of Trade
FSU:
-152
+1054
-442
+687
-57
Source: IMF, Direction of Trade StatisticsYearbook, 1992
to othcr EuropeanCMEAmembers,and to OECDcountries(EC, EFTA, North Americaand Japan). Two
pointsare worthnoting.First, the increasein exportsof the CEE-3economiesto the OECDmorethanoffset
the fail in exports to former CMEA markets.25 Second, there were significantdifferences in export
performanceamongthe CEE-5economies. Polandstandsout. Its exportsto the FSU increasedin both 1990
and 1991, while exports from other countriesfell, and the annual increasesin 1990 and 1991followed
expansionin both 1988 and 1989. The overallincreasebetween 1987and 1991was slightlyaboveUS$1
billion. It shouldbe notedthatwhilethe dataon intra-CMEAtrade until 1990sufferedfrom problemsrelated
A
25 Althoughthe amountsoffseteachother, the terms of tradeand budgetaryimplications
are different.
Thecollapseof intra-CMEAtradeand the switchto worldpricescontributedto governmentbudgetdeficitsin the
CEE-5,as a studyon Hungarydemonstrates
(Abel,Hillmanand Tanr,1992).
21
trade flowsinto US dollars,' litiswas not the case in 1991when around
to convertingruble-denominated
98 percent of all transactionswere carried out in hard currency(UN ECE, 1992:85). In consequence,the
data for 1991providea statisticallyless distortedimageof the realigmnentin exportpatterns.
B. The Redirectionof T'ormerCMEASalesto the OECQ
This sectionaddressesthe extentof diversionof exportsfrom the CMEAto the OECD. Whilemore
researchIs needed,somepreliminaryobservationsconcerningthe reorientationof exportscanbe derivedfrom
examiningchangesin Poland's exports in 1990 and 1991 (i.e., when an almost completeswitch to hard
currency settlementsin intra-CMEAtrade occurred), and in Hungarianand Polish exports of selected
manufacturesto the FSU and the EC.
Althoughcountriesexperiencesvariedaccordingto theirformerinvolvementin specializationschemes
withintheCMEA,we wouldarguethatthe patternof changein Hungary'sand Poland'stade has beenshared
by other former CMEA members. Their econc ies were under broadlysimilar administrativeeconomic
systems,they all pursuedsimilarinward-orienteddevelopmentstrategies,and they all were part of the radial
patternof industrialspecializationorganizedaroundthe FSU. Further, withinthe CMEAtradingarea, they
all sought to minimizeexports of hard currencyearnersand maximi; z: ports of goodswhichcouldnot be
sold in internationalmarkets.
Accordingto conventionalwisdom,CEE-5exportsof manufacturedgoodsto the CMEA,especially
in worldmarketsbecauseof high productioncosts and
to the FSU, consistedof 'soft" goodsnoncompetitive
low quality (Marreseand Vanous, 1983). Sincein the short term the quality could not be significantly
improved,the only meansavailableto producersof soft goodsto sell them in internationalmarketswas to
offer themat heavilydiscountedprices. However,there were two obstaclesto this course of action. Frst,
the trade-offbetweenlowpricesand productqualitywas limited:evenhuge price cutsmay not haveattracted
customers. Second, by 1991 producersin the CEE-3performedin a new environmentwhere financial
performancebecamelinkedto sales revenues. So they couldno longerignoreworld prices. For these two
reasons,the capacityof SOEsto competethroughprice discountswas eroded. Therefore,one wouldexpect
a very limitedredirectionof exportsof manufacturesfrom the CMEAto the OECD.
This expectationis borne out by Rodrick(1992)who usedthe changein the productcompositionof
industrialexports by area in 1985and 1990as a proxy measureof the extent of the switch in exports by
Poland (and Hungary)followingthe radicalopeningof the economyin January 1990. The compositionof
For a coacisediscussionof the majorproblemsinvolved,see Chapter2 in EconomicBulletnfio
Europe Vol. 42/90,pp. 29-31.
26
22
CEE-5exportsto the CMEAand to theOECDwastraditionallystronglydissimilar,the formerhavinga large
componentof capitalequipmentand electricalengineeringequipment,with the latterbeingdominatedby raw
materialsand energy. Rodrickconcludesthat "... there is no evidencethat the overall increasein trade with
the West was fueledby redirectingEasternsales to the West,or indeedthat the latter playedany role at all
in the former" (Rodrick,1992:18).
While some developmentsin 1991,after the switch to convertiblesettlementsin the formerintraCMEAtrade, seemto supportRodrick'sconclusion,a differentpictureemergeswhentaldng 1985as a frame
of referenceand focusingon the electdcalengineeringindustry. For example,in supportof Rodrick,in 1991,
as comparedwith 1990, the product compositionof Polish exports to former CMEA countriesbecame
significantlymore similar to the product compositionof its exports to other destinations.' Faced with
convertiblecurrencyconstraintsafter the terminationof the TR-paymentsmechanism,importersfrom the
former CMEAslashedsoft goods in favor of hard goods,independentlyof their origin. Indicativeof this
switchwas the increasein importsof the sameproductswhichhad beensuccessfullymarketedin the OECD
by Polish firms.
Comparisonof Polish industrialexports to the CMEAand the EC in 1985 and 1991, however,
-gests that the industrialproductstructureof exports to the EC shiftedtowardsthat of the CMW For
instance, the share in Polishexports of the electricalengineeringsector almostdoubled,from 11.3 percent
in 1985to 22 percent,as its exports (in current prices)to the EC increasedalmostfive-fold,whileits share
of exportsto the CMEAfell from 63.8percentto 45.3 percent. Productsof the electricalengineeringsectormachine tools, heating and cooling equipmew, mechanicalhandling equipment, etc.28--were among
manufactureswhichcontributedmost to the exportexpansionin the EC. Withouta detailedanalysisat the
micro-level,it is impossibleto tell whetherthe SOEsdominantin TR trade were also those who managedto
increaseexportsto other markets.
The redirectionof exports of power generatingequipmentfrom the CMEA to the EC is illustated
in Table 10. Power generatingequipment,the main productcategoryof the electricalengineeringsector,
accountedfor a significantshare of Hungarianand Polish industrialexportsto the FSU. (Exportsto other
CMEAcountriesare not takenintoaccountbecausethe share of "hardfor soft goods' tansactions was much
27 Tle index of dimqaty betweenthe two stuctures (whichasumes I for fill dmilarityand 0 for
completedissimilaity)rosefrom0.715in 1990to 0.896in 1991. Theindexfor 1991wascalculatedfor te same
breakdownusedby Rodrick(1992:18and 46). In addition,I calculatedthe indexof similaritybetwee product
compositions
of exportsto theformerEuropeanCMEAand theECE:the indexrose from0.621in 1990to 0.819
in 1991. For a moredetailedanalysis,see Kaminski(1993).
2S
For an extensivediscussion,see Ksminsli(1993).
23
smaller in their mutual trade than in their trade with the FSU.) The change in export patterns of the two
countries displays some similarities: Hungarian exports to the FSU peaked in 1987, while Polish exports
peaked in 1988; in the 1985-91 period the value of Hungarian exports to the EC increased almost five times,
while Polish exports increased almost 3.5 times; the largest increase in Hungary's and Poland's exports to the
EC, which occurred in 1990, coincidedwith the largest fall in exports to the FSU (the EC absorbed 57 percent
of the fail in Hungarian exports to the FSU and 106 percent of the fall ir Polish exports to the FSU); as a
result, the ratio of Hungaian exports to the FSU to exports to the EC fell precipitously from 7.3 in 1985 to
0.41 in 1991, while tho ratio for Poland decreased from 7.0 in 1985 to 0.38.
The degree of redirection of Hungarian and Polish exports of power generating equipment from the
CMEA to the EC may be inferred from two indexes: first, the ratio of the increase in the value of exports
to the EC to the decrease in the value of exports to the FSU between the peak year of exports to the FSU and
1991; second, the ratio of the total annual changes in the value of exports to the two partners in the 1985-91
period. These ratios are: 49 and 66 percent for Hungary; and, 33 and 45 percent for Poland. They suggest
that the scope of redirection was larger for Hungary (between one half and two thirds of the fall in FSU
imports compensated by the increase in EC imports) than for Poland (between one third and close to one half).
These measures should be ti
d with extreme caution, however, because of the use of different implicit
crossrates between the TR and the US doiar in the period under consideration." For instance, in 1990 the
crossrates used in both Hungary and Poland significantlyincreased, thus depressing the dollar value of exports
to the FSU. Thus, the value of earlier exports to the FSU was probably oversated, and so was the contaction
in 1990. As a result, the scope of redirection of Hungarian and Polish exports of power generating equipment
to the EC might have been actually larger than indicated by these two measures."
This "transformation" of soft goods into hard goods was possible thanks to EC demand (which could
not be met earlier because of obligations vis-a-vis the CMEA partners), greater concern for quality control,
low wages, subsidies (as OECD producers often complains'), or a combination of the above. 2 But the
29 For an extensivediscussionof statisticalproblemsinvolved,see EconomicBulletinfor Europe, Vol 43,
pp.59-62.
30 While no data are availablein the UN COMTRADEdata base for Czecho-Slovalda,mirror sistics
show a very considerableincreasein exports of SITC.Rev 1.71 to the EC from US$167millionin 1989to US$396
million in 1991. It is clear that reorientationplayed an importantrole in the increase.
31 West European producers of steel are particularly vocal in criticizing CEE-5 steel makers for
undercuttingprices through subsidies(Ostry, 1993:12). Clearly, energy-intensiveexportswere subsidizedthrough
cental co=iiols over prices of oil and electricityin 1990. In 1991 this was not the case, however.
24
experienceof the former east Germany'sexportssuggeststhat amongthese factors low wagesare crucial.
AlthougheastOermanindustrywas regardedas the mosttechnologicallysophisticatedwithinthe CMEA, no
redirectionof exports has so far occurreddespitethe generousexport auaranteesprovidedby the Gennan
govermment.Total exportscontractedIn 1991by 53 percentand had it not beenfor exportguaranteesto the
FSU, the declinewouldhave been muchmoresigDificant.33
This situationcan be attributedmainly to loss
of competitiveness
triggeredby large increasesin east Germanwages (in 1991they were around 70 percent
of the Westemlevel). As Dornbuschand Wolf (1992:239)observe:"The easternGermanproductivitylevel
resemblesMexico'sor Korea's, whilethewage levelmatchesthat of the UnitedStatesand is ten timesgreater
A competitivedisadvantage,the result
than that of the neighboringCzechand SlovakFederalRepublic."
of muchlower productivityin east Germanindustriesand muchhigherunit wage costs, couldnot be ofriset
3'
by qualityadvantages.
Table 9:
ChOni,n Orientation of Hunarianmid Potish Experts of Poier 6fnlettfng
Equit
Exports (SITC. 71) frm the FSUto the EC betwsam
1985 and 1991 (mittion USS)
Years
FSU
1985
518
1986
1987
1988
1989
1990
1991
500
549
468
434
294
133
Hwugary
EC Subtotal
71
100
121
154
176
257
325
Share of EC
(In percent)
FSU
Poland
EC Subtotat
Share of EC
(in percent)
589
12
759
108
864
12
600
670
622
609
550
458
17
18
25
29
47
71
619
559
722
653
524
147
120
154
194
235
370
386
740
713
916
888
894
533
16
22
21
26
41
73
data base, as reported by Hungary and Poland.
Source: The United Nations CO4TRADE
Thus,one mayconcludethat the troikaexportexpansionwas to someextentpropelledby redirecdon
of sales from the CMEAto the EC.35 The improvementin competitivenessmay be precarious,however.
The loss of momentumin Polish exports of electricalengineeringproducts in 1991 may indicate that
Onecaveatshouldbe made:withouta detailedanalysisat thefirmslevel,it is also impossible
to asss
waietherexportsdivertedfrom the FSU were profitableor represented'distress sales," i.e., at prices below
productioncosts.
32
3
See FocusGermany,DeutscheBankResearch,March 1992
34 Accordingto the Institutefor EconomicResearchin Halle,the unitwagecostwas around70 percent
higher than in west Germany. As the authorsof a reportemphasize,this situationis hurtingeast German
w"mpetitiveness
becauseit is not '... neutralizedwith qualityadvantages'(PocusGermanv.DeutscheBank
Research,March1992:4).
35 Richter(1992)drawsa similarconclusionfromthe analysisof changein Hungariantradepatterns.
25
improvementwas partly due to subsidizedenergy prices in 1990. An enterprise-levelassessmentof
redirectionof trade wouldshed somelighton thepotentialfor exportgrowthin the near future. The available
evidenceindicatesthat enterpriseswhich had specializedsolely in exports to the FSU and other CMEA
countriesdid not have muchsuccessin redirectingtheir exports to other markets. For instance,the driving
forcebehindPoland'sexportexpansionin 1990were the SOEswhichhad earlierexposureto Westernclients
and whoseprevious involvementin intra-CMEAtrade was not significant,as a recent World Bank study
forcefullyargues (Mueller,1991).
C. Im;act of the Switchfrom a Supply-to a Demand-Constrained
Economy
The analysisin SectionsIII and IV of this study shows the dramatic differencein foreigntrade
performancebetweenthe most reformedCentralEuropeantroikaand the BaLlancountries. It suggeststhat
countrieswhich decontrolledpricesas wellas liberalizingtheir trade regime, bringingexchangerates closer
to market-basedlevels,and introducingunifiedexchangerates, succeededin increasingexportsto the OECD.
No matterhowliberalthe trade regimeor howstrongor weakthe domesticcurrency,improvementin export
performancewas the result of a shift from administrativerationing to market clearingprices--i.e., to the
transitionfrom a supply-to a demand-constrained
economy. Despitethe liberalizationof the.. .- eigntrade
regimes,Bulgariaand Romaniawere crippledby macroeconomic
chaosand waveringmicroeconomic
reforms
and registeredfallsin exports.
By the end of 1991,externaltrade regimeshad been dramaticallyliberalizedin CEE-3countries.'
Theyhad all adoptedcurrencyconvertibility,followinga similar set of stepsincludinglegalization(or quasilegalization)of black market activities,liberalizationof domesticprices and unificationof exchangerates.
Theyhad all introducedtariffs, rules of customsvaluationand anti-dumpingprocedureswhichwere moreor
less compatiblewith GATr standards. And in all CEE-3countriesfirms coulddecidewhat they wantedto
importand/or export,and they had the right to buy foreigncurrencyat the officialexchangerate in order to
import goodsor servicesfrom abroad. As a result, tariffsand exchangerates becameeffectivetradepolicy
37 Table 10 summarizes
instruments.
the institutionalfeaturesof the convertibilityand foreigntrade regimes
of the CEE-3as at the end of 1991.
IroniCally,the onlyproductsfor whichquantitativerestrions were initiallymaintained
were those
subjectto quotas,VERs,etc. imposedon themby theEC, theUnitedStatesand othertradingpartners(Rodrick,
36
1992).
37 Theirimpacton firms' behaviormaybe weakenedby the extentto whichSOEsoperateundera softbudgetconstraint.Thisis stillthe casefor manySOEsin all post-communist
economies,especiallyfor the large
oneswhich,becauseof size,bavestrongpoliticalclout.
26
In the arena of domestictransformationpoliciesthe timingof their launchingand their scope varied
amongthe CEE-5. The differencesin institutionalcircumstancesin Hungary,Poland and the FCSK set the
38 Polandmovedfrom a supply-to a demand-wconstrained
economy
troika apart from Bulgariaand Romania.
in January 1990,and the FCSKin January 1991. Thetransitionto a marketeconomyin Hungarywas more
gradual,and a specificdate cannotbe given.39Bulgariamade significantstrides in this directionthroughout
1991,whileRomaniawasstill in an "institutionalvacuum"in mid-1992.Thetwo Balkancountriesoffersome
controlson exportperformancein a shortage
indicationsas to the impactof the lossof centralmacroeconomic
economy:this inevitablyleadsto the collapseof exportsno matterhow liberala trade regime maybecome.4
On the other hand, the impressivegains made by the FCSK, Hungary and Poland in OECD markets
demonstratedthe stronglink betweenradicaleconomicreformsand exportperformance. For the FCSKand
Poland, the link is striking when the dates of implementingthe economictransformationprograms are
juxtaposedwith their exportgrowthstatistics. Duringthe first year of the transformationprograms,Poland
increasedits exports to the OECDby 43 percentand the FCSKby 37 percent.
Tlhemajordomesticchangeswhichencouragedexportson the basisof comparativeadvantagefor the
CEE-3countriesincludedthe contractionin domesticeconomicactivitiesas a result of restrictivemonetary
and fiscal policies, th
:3exaliztionof prices, and the grantingof significantautonomyto SOEs. These
reformswere undertakenby the troikacountriesin 1990and 1991. Anotherfactor whichhad a bearingon
their exportperformancewas earlier commerciallinks betweenSOEs and the OECD.
Even though all CEE-3 economiescarried out these reformsin generalterms, differencesof detail
existed. These stemmedlargely from the differencesin economicconditionsprecedingthe collapseof the
communist regimes. Hungary, with many market institutionsalready in place before the collapse of
communism,was able to continueits evolutionarypath; the FCSK, which had a relatively balancedand
38 Havinggonethrougha differentpoliticalcyclefollowing
thecollapseof communist
regimes, Bulgaria
and Romaniabegantransformingtheireconomicsystemsonly in 1991. In both countries,the first freeelections
heldin 1990broughtaboutthevictoryof formercommunist
parties. Theformercommunist
partylostits majority
in the Bulgarianparliamentin the secondelectionsin the faullof 1991,and, as a result,the reformprocesshas
acquireda greaterdegreeof politicalcredibility.
39 In September1990the Hungarian
govemnment
adopteda three-yeartransformation
program,speling
out the majormeasuresthatwouldreducedirectgovernment
interventionin the economy,expandthe roleof the
of thefinncial sectorto themarket rules
privatesector,furtherliberalizeprices,andprovidea gradualadjustment
m
of thegame.'
40 Thisis not a newfinding. Neitheris thisphenomenon
currentlylimitedto BulgariaandRomnuia.The
link was amply illustratedby the Polish experienceduring the Solidarityperiod in 1981 (Poland's share in OECD
imports droppedby 31.4 percent). The current fall in the foreigntrade of former Soviet republicsis in part related
to the same phenomenon.
27
centralizedeconomy,did not need very restrictivestabilizationpolicies(somewould argue that the policies
chosenwere unnecessarilyrestrictive,see Blejerand Gelb, 1992);whilePoland,which sufferedfrom severe
domesticimbalancesexacerbatedby the significantautonomygivento SOEs, requiredradical stabilization
policies.
Reactionsby CEE-3firmsto policychangeswere not expectedto be 'normal" marketreactions,given
the institutionalfluiditywithinthesecountriesand the limitedrole of the private sector in the initialphases
of the transformationprocess. Yet the responseto the breakdownof the state monopolyof foreigntradeand
the introductionof currentaccountconvertibilitywas a dramaticincreasein the numberof firms involvedin
foreigntrade activity,a seeminglynormalreaction. The link betweenimports,domesticaggregatedemand
and the real exchangerate, whichbarelyexistedunder centralplanning,was establishedunder the economic
transformationmeasures. Importdecisionsbecameresponsiveto price relationshipsbetweendomesticand
foreigngoods.
However,some responsesmay strike one as perverse, i.e., non-textbookresponses. For instance,
a simplecomparisonof monthlyreal exchangerates with monthlyconvertiblecurrencyexports suggeststhat
the appreciationof the Polishzloty was not accompaniedby a contractionof exports in 1990.4 Similarly,
neitherin theFCSKnoi.'in Hungarydid thesignificant
reciationof theircurrenciesthroughout1991trigger
a fail in exports. On the contrary,exportsincreasedsignificantlyat a time of increasingdomesticcosts and
fallingforeign prices.42 The initiallylow sensitivityof SOE managementsto profit considerationscan be
explainedby the fact that thesepressureswere somewhatattenuatedby govermnentsubsidiesof SOEs,4 as
well as by expectationsthat 'things will soon become ab-normalagain." Also, many SOEs held very
41 A regressionwith monthlyconvertiblecurrencyimportsas the dependentvanableand aggregate
expendituresandtherealexchangerateas independent
variables(accountingfor a seasonalvariation)for the 198889 and 1990-91periodsyieldsthefollowingresults:weakrelationships
betweenimportsand thereal exchangerate
and domesticexpendituresfor the periodbeforethe 'big bang' of 1990,and strongonesfor the 1990-91period
(Michalek,1992).
42 Althoughall CEE-3govemments
devaluedtheirdomesticcurrenciesin 1990and 1991,thedevaluations
tendedto be less thanthe inflationrates,thusleadingto a revaluationin real terms. The 'big bangs' in Czechoeroded
in therealexchangerates,subsequently
bya significantdepreciation
SlovakiaandPolandwereaccompanied
by inflation.Thedevaluation-inflation
gap wasparticularlyacutein Polandthroughoutmostof 1990anduntilMay
1991(Winiecki,1991),and in Hungaryin 1991(Denton,1992). The gap was muchless severein CzechoSlovakia,where
monthlyinflationratespeakedin early1991(Rodrick,1992).
43 The degreeand modesof subsidization
variedacrosscountries. Butduringthe initialstageof the
transformation,
they all had one thingin common,namely,sincemoststate-controLled
priceswere belowworld
marketlevels,exportof theseproductsor of productswitha high contentof mnputs
subjectto price controlswas
in fa-t -absidized. Thiswas thecasefor exportsof energy-intensive
goods.
28
significantstocksof raw materialsand intermediateproducts," they had accumulatedstocksof convertible
currenciesunder the exportearningsretentionscheme(usedin Bulgariaand Poland),and theyhad easy access
to credits and subsidies. Underthese circumstances,the restraintson moneysupplyaffected the liquidity
5 but not that of SOEs cushionedby the "old" system. Another
positionof householdsand private firmse
considerationis that the dwindlingdomesticdemandmighthave pushedsome SOEsto engagein discounting
prices below full productioncosts. These 'distress sales," also experiencedby private firms in market
economiesduring an economicdownturn,may have contributedto the weaker sensitivityof SOEs to the
exchangerate policy.
It is impossibleto linkspecificpolicyvariableswith exportperformancein the circumstancespeculiar
to each country. There are too manyvariables,and they were Ph"mgingtoo rapidlythroughoutthe 1990-91
period. Yet two broad sets of circumstanceswere shared bv exportersin the CEE-3. First, the shift to a
economywasaccompaniedby a fallin aggregateoutputand domesticdemand. Wehave
demand-constrained
no reliabledataon the developmentsin domesticabsorption,but thedownturnin domesticdemandas proxied
by the Net MaterialProduct(NMP)and industrialoutputwas quite significant. Duringthe first year of the
transformationprogramin the FCSK, the NMP fell by 20 percent and industrialoutputby 23 percent. In
Hungary, the NMP was 11 percent lower and in Poland 23 percent lower in 1
than in 1989, while
industrialoutputwas 23 percentand 33 percentlower, respectively.'
It is interestingto notethe correlationbetweenthe contractionin domesticaggregateactivityand the
growth of exports to OECD markets (measuredby the increase in the share of OECD imports). The
relationshipis somewhatobscuredby the Czechoslovakperformance:the FCSK's increasein OECDimport
share in 1991was smallerthan Poland's, but the fatl in industrialoutputand nationalincomeduringthe first
year of the transitionprogram(by 16 percentand 22 percent,respectively)was slightlylargerthen in Poland
(13 percent and 23 percent, respectively).This slightdifferencebetweenthe Polishand Czechoslovakcases
mighthavebeendue to severalfactors:the above-mentioned
allegedmacroeconomicoverkillat the outsetof
the transformationprogramin the FCSK;greater dependenceof the FCSKon trade with the FSU; and
" Becauseof theunreliability
of suppliesandpersistentexcessdemandfor theirproducts,theSOEstended
to maintainhigh inventoriesof inputsratherthanof finishedproducts. For an extensiveanalysis,see Kaminsi
(l991:Ch.2).
45 A comparisonof real changesin households'and SOEs' depositssuggeststhat this was the case in
Polandin 1990. It maybe worthaddingthatthis situationcontinuedin 1991(for morediscussionon this point,
see Winiecki,1990:765-790).
46 SeeTables3.2.3 and 3.2.6 in UN, ECE 1992.
29
Tabte 10:
A Sumry of Convertibility
Institution
responsible
for setting
exchange rate
Exchange
Rate
Regime
and Foreign Trade Regimesin the CEE-3 (end of 1991)
Pegged
Currency
Access to Convertible
Currency Markets
Export
Measures
Tariffs
Licensing & Irport
Quotas
No taxes and subsidies.
Around 201 of exports
subject to lIcersing
Average around
51. A tenporary
import surcharge
No quantitative
controls. Feu
import Licenses
Czechoslovakia
Council of
Ministers.
National Bank
Fixed
Currency
Purchase unlimited.
basket (DM Firms can buy CC
accounts for in banks.
sets the
45.5X)
exchange rate
within +/-10X
of the official
rate.
Individuals
(covers weapons, essen-
entitled to
S175 per year.
tial
inputs and VERs).
of 151. Around
covering weapons,
96X is GATTbound.
drugs, etc.
Average around
13X. but other
charges (5-6X
ad valorem).
Licenses cover
around 101 of
total imports.
1001 advance
ifport deposit
required.
Hungsr
Planning
Committee of
Council of
Ministers.
National Bank
sets the
exchange rate
withfn+/-S5
of the central
rate.
. . .
.......................
Crawling
. ....
Currency
basket
(50 USS,
501 ECU)
....
..
..
Purchase unlimited.
Firms can buy CC in
banks for foreign
trade transactions.
Individuals
entitled
to S50 per year.
..
..
. .............
..
. ...
Subsidies on some
agricultural
products.
Restrictions
related
to OECDnontariff
restrictions.
....
..
...
.....
....
. .......
......................
Poland
Council of
of Ministers
Sources:
Downward Currency
crawl
basket
(preannounced)
Full convertibility
for current account
transactions.
No taxes and subsidies.
Export quotas related
to OECDrestrictions
and selected inputs.
Average around
14X. All procedures in line with
GATTarticles.
No restrictions except
for alcoholic
beverages.
Jan J. Michalek, The Opening-Up of the Polish Economy, PPRGDiscussion Paper #11, University
of Warsaw, December 1991; Dani Rodrick,
Foreign Trade in Eastern Europess Transition:
Early Results, NBER, mimeo, January 1992; and Gazeta Bankowa, No. 44, 11.03-11.09.1991.
30
initialy, the less-developedcommerciallinks of CzechoslovakSOFswith OECDimporters. (Thelast factor
was due to the stringentmonopolyof foreigntrade in the FCSK in the 1980s,see Section11). Hungary,
which adopted the most cautiousapproach, experiencedthe lowest decline in GDP, and had the lowest
increase in OECDmarket share amongthe CEE-3. Theserelationshipsbetweenexport expansionand the
contractionin aggregateeconomicactivitypointto the domesticdemandslumpas an importantdeterminant
of exportperformance.
The secondset of circumstancessharedby the CEE-3economieswasthat the emergenceof a domestic
demandconstraintcombinedwith the liberalizationof trading regimescreated an environmentwhere the
incentivesto export were strong. Faced with the collapseof consumerdemand and devaluation,export
expansionbecameone of the few optionsavailablefor preventingtoo drastica fall In output. Becauseof the
cessationof the CMEAsoft paymentsmechanism,the insolvencyof Sovietimporters,and the faUin import
demandin the former CMEAeconomies,the only avenuewas to expandexportsto marketsother than the
FSU and theCMEA. Surprisingly,giventhedominanceof SOEsand theobsoletecapitalstocksin the CEE-5
economies,SOEs from the most reformedCEE-3economiesrespondedto these challenges,showingvery
impressiveexport performance. Enterpriseswith establishedlinks with OECD importersand marketing
advantageof this situation.
expertisewere clearlyin a better positionto
The primaryforcebehindthe impressiveexportperformanceof the CEE-3was the restructuringof
their domesticeconomicsystemsinvolvingthe liberalizationof pricesand thehardeningof budgetconstraints
for SOEs.The reformsmadethe SOEsmore responsiveto marketsignals. By establishingmoretrnsprn
links betweentheirperformanceand theirfinancialsituation,thereformmeasuressubjectedSOEsto a tighter
budgetconstraint. At the sametime, the significantliberalizationin tradepolicyexposedthe SOEsto foreign
competition. As the experienceof different CEE-5 economiesdemonstates (see section II), however,
liberalizationof the foreigntrade regime has no significantimpacton export performanceif the economy
remainsa supply-constrained
economy,that is, if the shift to market-clearingprices is not made. In fact, the
experienceof Bulgariaand Romaniain the 1990-91period showsthat a hybrid of quasi-marketsand quasiadministrativecontrolshas a disastrousimpacton exportperformance. Thus the key to improvedexport
performanceis the shift to a demand-constrained
economyaccompaniedby liberalizationof the foreigntrade
regime.
VI. IS THE EXPORTEXPANSIONTO THE OECDSUSTAINABLE?
There are still too many unknownsto be able to give an unequivocalassessmentof whetherthe
improvedexportperformanceexperiencedin the first year of the transformationprogramsin the FCSK and
Poland is sustainable. Althoughthe increasein exportsto OECDmarketswas quite dramatic,it does not
31
necessarilyimply a dramaticchange in the CEE-3economies'competitivenessand export potential. Their
industrialbase, inheritedfrom centralplanning,has remainedunchangedand will not be transformedunless
an upswingin outputand capitalformationtakesplace. The improvementin exportswas impressivebut only
against the backgroundof the dismal performancein the 1980s. Still, the export boom, driven by
manufactures,wasan unexpectedoutcomeof the transformationand representeda turnound in CEE-3export
performancein OECDmarkets.
The argument in support of seeingthe export expansionas only a temporaryphenomenonis as
follows. The major constrainton the trade performanceof the CEE-3in the 1980swas on the supplyside.
The removal of this constraint,by replacingan administrativeeconomicsystem by a marcet-basedone,
reducedwaste in the use of resources. The fall in consumptionled to a temporaryincreasein exportoffers.
The main source of expandedexportswas not diversionfrom formerCMEAmarketsbut the contractionof
domesticdemand,resultingin distressexports. Expansionof exportswill be possibleonly so long as there
is a further compression in domestic demand accompanied by devaluations of domestic currency to ensure
profitabilityof exports.
However, there are groundsfor sketchinga moreoptimisticscenario. First, the troika economies
continuedtheir exportexpansionin 1992. For instance,duringthe first six
iths of 1992, the third year
of the transformationprogram, Polishexports in current prices increasedby 12.5 percent (CPO, 1992:1),
while the value of Hungarianexports increasedby 14 percent for the first seven monthsof 1992" More
significantly,the increasein Polish exports took place againsta backgroundof stagnant(not contacting)
domesticdemand.
Second,the exportupswingtook place in an institutionalenvironmentwhosefull exportpotentialis
yetto be tapped. Two institutionalconstraintsremain. The first relatesto the dominanceof the state-owned
sector. Duringthe initialstage of the transformation,the exportpush came from SOEs with organizational
structures inherited from central planning. Privatizationof SOEs, usually preceded by organizational
restructuringto make state-ownedassets more attractiveto potentialinvestors, is likely to increase their
capacityto competein internationalmarkets.
The secondinstitutionalconstraintto exportgrowthrelatesto the absenceof organizationsproviding
informationand creditsfor export-orientedactivities. While the absenceof export-promotinginfrastructure
was not particularlyrelevantfor large SOEs with an earlier presencein OECD markets, it may hamper
exportsby newly-establishedprivate firms. The problemis that they are usually small and seldomhave
informationcapabilitiesfor identifyingexportopportunities. In addition,since they lack capital, they tend
47 See Transition.The Newsletterabout ReformingEconomies,The World Bank, Vol. 3, No. 8,
September1992,p. 11.
32
to trade with geographicallyclose countries, as the experienceof small Hungarianand Polish fims
illustrates."' Their share in exports, thoughincreasing,remainslower than their share in aggregateoutput.
In brief,privatizationand organizationalrestructuringof SOEstogetherwiththe developmentof infrastructure
facilitadngaccessto foreignmarketsmay providestrongstimulito exports.
More mesearch
is needed on the followingissues to provide an answer to the question of the
sustainabilityof export growthfollowingthe introductionof radicaltransformationprograms:
First, the extent to which SOEs successfulin marketingtheir products in the OECD have been
affectedby the decLinein investmentactivity. The evidenceis scarce but there are some indicationsthat
9 and that export performancehas not been reflectedin
export-orientedenterprisesface a fimancialsqueeze,'
higher profitability. If this is so, it is doubtfiulthat export-orientedSOEs have investedin upgradingtheir
productioncapacities,which willadd to the difficultiesof privatizingSOEs.
Second,the supplyside of the exportupswing. Amongthe questionsrelevantto the sustainability
issue are: what manufacturedgoodscontributedto theexportdriveof the CEE-3,to what extentdid revealed
comparativeadvantageschange during the recent export drive, and did exports originate mainly from
productivecapacitiesof more recent vintage?
bird, the characteristicsof the majorCEE-3exportmarkets,that is, whethertheseOECDmarkle:
are stagnating,contracting,or expanding?
Fmially,the impact of rising foreign direct investmentin the CEE-350by OECD firms on the
internationalcompetitivenessof the troika.
VII. CONCLUSION
This paperprovidesanalysisto supportthe followingfindings. Furst,the decisionto movequicldy
to a market-basedeconomywas closelylinkedwith exportperformance. This is illustratedby the dramatic
differencebetweenthe export performanceof the most reformed Central Europeantroika and that of the
4s Accordingto the HungarianMinistryfor International
EconomicRelations,the growthof smalland
medium-sizedfinns engagedin exportswas one of the factorsaccountingfor the fall in trade with developing
countries(see 'Hungary:ForeignTrade,' OxfordAnalvtica,27 August1992). Polishprivatefirmsalso export
mainlyto EC markets(see CPO-1992and MWGZ-1992).
49 For instance,the Hungarianministerof international
economicrelations,BelaKadar,notedthat SOEs
facingbankruptcyexportedproductswortharoundUS$1billionin 1991.See RadioFree Europe- DailyReport,
June30, 1992. In 1991thePolishstaowned industrialsectorrecordedsignificantlosses,but it is unclearwhether
the SOEsheavilyinvolvedin exportswereprofitable.
50 For a statisticalsurveyof foreigninvestmentin Centraland EasternEurope, see East Eurnean
Investment,June 1992:14-25.
33
Balkan countries. Countries which liberalized their trade regimes, devalued currencies, introduced unified
exchange rates, and removed administrativecontrols over prices succeeded in increasingexports to the OECD.
Roimania,crippled by macroeconomic chaos and vacillating microeconomic reforms, registered falls in both
exports and imports.
Second, developments in export performance following the implementation of comprehensive
transformation programs seem to have had little to do with previous trends in export performance, external
economic factors and earlier attempts at trade regime reforms. Pre-transformationexport performance offered
no clues as to what actually occurred--the export expansion in the 1990-92 period was a dramatic reversal of
trends prevailing over the previous two decades. Similarly, the degree to which the administrative economic
system was modified before the collapse of communism turned out to be of less consequence for foreign trade
than was generally anticipated. The FCSK, which was not at the forefront of reform efforts under centrai
planning and had not sought to expand commercial relations with the OECD, recorded export growth as
impressive as Poland's. Thus, neither the length of the "adjustment period" to market institutions and less
rigidly controlled foreign trade nor earlier trends in compe'titivenessin OECD markets explain the increase
in exports.
Third, the differences an,. ng the troika in export growth to the OECD were positively correlated with
the size of contractioDin GDP rather than with exchange rate policies. Hungary experienced the lowest
decline in GDP, but simultaneouslyexperienced the lowest increase in OECD market share among the CEE-3.
The devaluation-inflationgap in the CEE-3 had no significant impact on exports. The domestic demandslump
associated with the transformation was the most important determinant of export performance.
Fourth, the severance of links that used to bind economies of the CMEA had a less destructive impact
on foreign trade performance than oniamight expect. Although relationships between intra-CMEA trade and
trade with the OECD are still obscure, the simultaneity of the fall in exports to the CMEA and the increase
in exports to the West suggests a connection. These developm_ntsgive an interesting twist to East Europeans'
description of the CMEA as a "council for mutual exchange of inefficiencies."
34
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37
STATISTICAL
WFPEIDIX
Appendix Table 1:
Suwmry Characteristics
Rates of Export
Growth to OECD
of the Export Performance of the CEE-5 in the OECDin 1983-89 and 1990-91.
Average Share in OECD Index of CEE-5
Imports
Exports to OECD
X Change Iworts (value)
In Share 1989
1991
'84-89 '90-91 (d/c-I)'83=100 '89=100
(c)
(d)
(e)
(f)
(g)
Ratio of CEE-5
Export Index to
OEC)Imaort Index
1989
1991
'83-100 '89=100)
(h)
Ci)
CommodityCoqposition of Country Shares in
CEE-5Exports X Change Total CEE-5Exports
Average in
in Share Average
ChangeIn
share
'84-89 '90-91 CiIh-1)'84-89 '90-91 (nl/mI)
(j)
(k)
(l)
(m)
Cn)
(o)
1990
(a)
1991
(b)
19
18
-12
8
10
29
16
6
-14
20
-6
25
0.95
1.41
1.44
1.33
1.67
0.74
0.97
1.63
0.84
1.52
1.54
0.86
2
16
-CI
14
-7
16
169
192
99
196
150
197
137
126
75
129
104
161
93
121
130
107
84
85
115
102
60
139
110
134
100
15
20
6
6
51
22
25
-26
9
-10
37
6
12
0.04
0.04
-5
0.13 17
0.01 -72
0.05 40
0.05
0
0.03
4
129
145
46
151
249
159
.40
154
218
76
149
71
91
61
83
140
69
109
114
12
235
80
123
100
27
15
4
5
47
0.22
157
192
95
195
146
170
160
119
81
216
80
188
100
8
13
3
12
64
CEE-5
TotalExports
Foedsand Feeds
MireralFuels
Ores and Non-Ferrous
RawMateriats
Manufactures
--6
-54
2
-23
22
----...
...
----...
...
----...
---
---
---
...
100
31
4
5
4
55
--15
-77
29
-13
18
4
8
3
3
3
4
4
8
1
3
4
4
-6
1
-54
19
6
-10
100
8
7
4
7
73
---
21
11
13
10
39
26
23
11
16
14
33
27
11
1
23
6
-14
4
100
16
9
6
5
62
gulgaria
Total Exports
Foodsand Feeds
MineratFuels
Ores and Non-Ferrous
RawMaterials
Manufactures
100
-16
9
0.11
0.05
0.04
0.05
0.03
37
9
-6
120
-22
49
0.20
0.15
0.19
0.13
0.65
0.19
-79
Czechoslovakia
Total Exports
Foodsand Feeds
MineralFuels
Ores and Non-Ferrous
Raw Materials
Manufactures
17
9
-14
-1
3
27
14
0.18
16
0.14 -28
0.22 68
0.52 -20
0.23 22
86
121
125
107
82
74
134
97
64
232
85
156
-3
-48
28
-38
15
38
Appendix Table 1 (cont.):
SummaryCharacteristics of the Export Performance
of the CEE-5 in the OECDin 1983-89and 1990-91
Rates of Export Average Share in OECD Index of
CEE-5
Ratio of CEE-5
CommodityCoqpositfon of Country Shares in
Growth to OECD Imports
Exports to OECD Export Index to
CEE-5Exports I Change Total CEE-5Exports
X Change Imvorts (value)
OECD Import Index
Average
in Share Average Changein
in Share 1989
1991
1989
1991
1990 1991 '84-89 '90-91 (d/c-1) '83=100
share
'89=100
'83=100 '89=100) '84-89 '90-91 (i/h-i)
(a)
'84-89 '90-91 (n/m-l)
(b)
(c)
(d) te)
(f)
(g)
(h)
(i)
(J)
(k)
(L)
(m)
(n)
(o)
TotalExports
Foodsand Feeds
NineralFuels
Oresand Non-Ferrous
Raw Materials
Manufactures
27
11
4
24
14
38
17
20
12
-21
13
21
0.20
0.50
0.14
0.26
0.33
0.16
0.25 21
0.57 16
0.12 -16
0.32 21
0.38 16
0.21 31
191
182
131
234
173
203
148
133
117
99
128
167
105
115
172
129
97
88
124
108
92
106
136
138
100
25
10
6
6
53
100
22
5
5
5
62
---
44
35
25
25
33
58
13
0.28
0.56
0.37
0.72
0.43
0.87
0.55
0.28
193
234
98
166
142
270
162
124
132
153
137
194
106
148
129
91
80
117
137
101
105
164
145
161
100
20
21
11
6
41
100
20
12
10
4
54
---8
-42
-12
141
109
102
299
118
168
58
76
19
31
77
69
134
164
67
7,3
49
62
15
34
47
65
100
4
36
5
2
52
100
4
16
3
2
75
22
35
10
20
20
22
25
35
14
21
24
25
9
0
44
8
27
13
33
30
40
31
51
29
24
38
44
52
57
35
33
29
11
68
12
20
40
---8
-56
-31
-29
-42
24
7
43
17
9
24
10
2
17
5
3
11
-60
-67
-61
-72
-63
-53
-10
-46
-8
-20
16
Polaod
TotalExports
Foodssnd Feeds
Mineral Fuels
Ores and Non-Ferrous
RawMaterials
Manufactures
-8
5
22
3
23
0.44
0.68
0.49
0.17
31
28
-2
28
11
63
-29
Roanfa
Total Exports
Foods nd Feeds
Mineral Fuels
Ores and Non-Ferrous
RawMaterials
Manufactures
-31
-57
-47
-62
-39
-18
-16
77
-65
-18
-27
-4
0.23
0.09
0.62
0.23
0.15
0.18
Source: The United Nations CONTRADE
Date Base.
0.09 -60
0.04 -62
0.14 -77
0.07 -68
0.05 -67
0.10 -47
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