Kamil Pikuła
The influence of production factors transfer on the
international trade with goods in diverse economic
systems
Phd thesis summary
Supervisor: prof. dr hab. Paweł Bożyk
Warsaw 2014
1. The purpose of research
The purpose of research conducted in the doctoral dissertation is to examine the influence of
production factors transfer on international trade with goods in diverse economic systems. The
analysis is based on economic cooperation between Poland and the Soviet Union (1950-1991) as
well as Poland and Russia (1992-2013). In the first period, both countries were members of the
Council for Mutual Economic Assistance (Comecon). The transfer of production factors resulted
from administrative and centralized management. In the second one, the international movement
of labor, capital and knowledge was dependent on market forces. The economic transition has
therefore created new possibilities of international factor mobility and trade with goods both for
Russia and Poland.
The gravity model is a methodological tool used to verify the hypotheses. It is one of the most
popular statistical methods used to analyze the influence of production factors transfer on
international trade. According to the current state of knowledge, the gravity equation has been
applied only to examine the developed countries with market economies whereas the Central and
Eastern Europe was omitted. The major reason was a lack of data necessary to compare postsoviet countries.
2. The cause of research
The major cause of research is the lack of knowledge about the influence of production factors
transfer on international trade with goods in diverse economic systems. The gravity equation has
been applied for the past 40 years to analyze the production factors influence on international
trade. However, only market economies were the subject of research. Furthermore, the majority
of them referred exclusively to the developed economies and omitted the Eastern and Central
Europe. The authors underlined the exceptional ability of the model to explain the relationships
between productions factor transfer and international trade in market economies. Nevertheless,
there is a lack of similar analyses in case of the economies with diverse economic systems.
The results of research conducted in this doctoral dissertation may therefore reveal a new
direction of research about the topic in question. It will be also more advanced since the analysis
concerns both directions of international trade (export and import). Therefore, the
multidimensional aspect of the examined issue is presented. It is also worth pointing out that the
2 command economy in Poland as well as in the Soviet Union (Russia) were functioning
differently. Thus, the research is aimed at examining diverse economic systems.
The doctoral dissertation refers also to the various aspects of economic cooperation between
Poland and the Soviet Union (Russia). Firstly, the detailed description of international trade with
goods and factors of production movement between 1950-2013 is provided. It is vital to present
not only the statistics but also the historical, political and social context of research. Secondly, the
result of gravity model estimation boils down to the group of numerical values that determine
how many percent of international trade with goods resulted from the movement of production
factors between analyzed countries. The critical point is to examine the direction and strength of
influence on import and export. The result of research is augmented by the Pearson correlations
index what allows to deepen the understanding of the relationship between explaining variables
(labor, capital, knowledge) and explained variables (export, import). Thirdly, the research will
present the application of the gravity model in the command economy.
3. The description of research
The purpose of research is to analyze the influence of production factors transfer on international
trade in diverse economic systems. It is vital to examine whether the estimation of gravity
equation is referable to the real economy in case of both schemes (command and market regime).
The main hypotheses are:
-
The international movement of labor, capital and knowledge stimulates the development
of international trade with goods both in market and command economies.
-
The economic cooperation between Poland and Soviet Union (1950-1991) and Russia
(1992-2013) resulted in predictable patterns of the production factors influence on
international trade with goods.
-
The gravity model may be used in order to analyze the influence of production factors
transfer on international trade both in market and planned economies.
3 4. Method
It was J. Tinbergen, K. Pöyhönen, H. Linnemann i K. Pulliainen who firstly applied the gravity
model in the analysis of international trade.1 They argued that a volume of trade with goods
between countries increases proportionally to the economic mass of the countries (measured by
their GDPs) and decreases proportionally to the distance between them (measured by the
geographical distance).2 The gravity model is derived from the following equation:
X!" = G
!! !!
!!!"
, where:
(1)
Xij denotes international trade between country i and j. Ei refers to the economic mass of the
country i, Ej refers to the economic mass of the country j, Dij is the distance between country i
and j, and G stands for the gravitational constant. The generalized version adjusted to application
in the economic research is slightly different.
!
X!" = G
!
!! ! !! !
!
!!"!
, where:
(2)
𝛽! i 𝛽! stand for elasticity of international trade against the GDP of country i and j (respectively),
whereas 𝛽! denotes the elasticity of trade against the distance between examined countries.
Usually the model is linearized in the following way:
𝑋!" = 𝐺 + 𝛽! 𝑙𝑛𝐸! + 𝛽! 𝑙𝑛𝐸! + 𝛽! 𝐷!" + ε!"
(3)
1
H. Linnemann, An Econometric Study of International Trade Flows, North-Holland Publishing Company,
Amsterdam 1966
K. Pöyhönen, Towards a General Theory of International Trade, “Ekonomiska Samfundet Tidskrift” 1963, No. 16, s.
69–78
K. Pulliainen, A World Trade Study. An Econometric Model of the Pattern of Commodity Flows in International
Trade in 1948–1960, “Ekonomiska Samfundet Tidskrift” 1963, No. 2, s. 78– 91.
J. Tinbergen, Shaping The World Economy Suggestions for an International Economic Policy, The Twentieth
Century Fund, New York 1962.
2
Oba pojęcia, tj. rozmiaru i odległości ekonomicznej (ang. economic size and distance) budzą pewne kontrowersje.
Dokładniejsze omówienie tych kwestii znajduje się w późniejszej części podrozdziału.
4 The aforementioned equation may be augmented with several variables in order to examine the
factors affecting an international trade, i.e. common language, colonial ties, access to the sea,
common border, level of prices, exchange rate or the amount of signed trade agreements. The
great majority of research confirms that each of those factors has direct or indirect influence on
international trade.3 The equation may be therefore modified in the following way:
𝑋!" = 𝛼 + 𝛽! 𝑙𝑛𝑃𝐾𝐵!" + 𝛽! 𝑙𝑛𝑃𝐾𝐵!";!" + 𝛽! 𝑙𝑛𝐷𝑖𝑠!" + 𝛽! 𝐵𝑜𝑟!" + 𝛽! 𝐿𝑎𝑛𝑔!" + ⋯ + ε!" (4)
The gravity model applied in this research is a modification of equation 4. Several variables were
omitted, because they do not constitute the subject of research. A few additional and specifically
designed measures were added in order to adjust the gravity model to the conditions of planned
economy.
5. The thesis structure
Chapter 1. A theoretical framework of research is described in the first chapter. It is especially
aimed at explaining the interactions between factors of production movement and international
trade with goods in classical and neoclassical theories, i.e.: the theory of absolute advantage,
comparative advantage and H-O-S theorem. The gravity model itself is examined in the historical
perspective and augmented with specific variables according to the conditions of a given research
period. A huge part of the first chapter is devoted to the literature review. So far, the research
suggests that there are three possible relationships between factors of production and
international trade. The labor force, capital or technology may affect an international trade with
goods positively, negatively or neutrally (no impact). The theoretical consequences of those
interactions for the real economy are analyzed in this chapter.
Chapter 2. The conditions of production factors transfer and international trade between Poland
and the Soviet Union in 1950-1991 were explained in the second chapter. The specificity of
cooperation within Comecon as well as its formal structure was thoroughly explained. Several
examples of the gravity model application were also presented. The main part of the chapter was
devoted to the detailed analysis of cooperation within Comecon in terms of labor, capital and
3
Genc M., et al., The impact of immigration on international trade: a meta-analysis, NORFACE MIGRATION
Discussion Paper No. 2011-20 s. 7.
5 technology as well as trade with goods. The data are implemented into the modified and
augmented gravity equation in order to estimate the influence of production factors transfer on
international trade between Poland and the Soviet Union in 1950-1991. The analysis was
enhanced with additional statistical tools that are aimed at providing the wider picture of
economic cooperation between analyzed countries.
Chapter 3. The third chapter explains new conditions of Polish-Russian relations after the
collapse of the Soviet Union and the dissolution of Comecon. Two different methods of transition
lead Poland and Russia into diverse state of their contemporary economies. Therefore, the
specific aspects of reforms, privatization and trade liberalization are explained in greater detail.
The system changes that were aimed at creating market economies in both countries resulted in
different contemporary economic conditions. A significant part of the chapter is devoted to the
explanation of the interactions between international trade and labor, capital and technology
transfer between Poland and Russia in 1992-2013. The modified and augmented gravity model
was used in order to estimate the influence of production factors transfer on Polish import to
Russia and export from Russia. In order to confirm the results, other advanced statistical tools
were applied in the research.
Chapter 4. The factors that affect Polish-Russian economic relations after 2013 were described in
the fourth chapter. New conditions appeared due to the unexpected events on the international
political scene. Several scenarios of Polish-Russian international trade development are
presented. They include not only economical factors but also political and social framework, e.g.
Russian accession to WTO or creation an open market area between Russia and the EU. The
scenarios refer to decrease, increase or stable development of economic cooperation between
Poland and Russia. Previously applied data were extrapolated and implemented into the gravity
equation. As a result, a new picture of relationship between production factors transfer and
international trade emerged.
6. Conclusions and results of the research
Poland and Russia were cooperating with each other as Comecon members between 1950-1991.
The international factor mobility and trade with goods resulted from the assumptions of
command economy. There was a certain range of unplanned movement of labor, yet the capital
6 and knowledge were almost fully subject to the administrative decisions. The similar situation
occurred in the international trade, coordinated on the basis of five or six-years plans. The
estimation of augmented gravity model confirmed a positive influence of labor and capital
transfer on international trade between Poland and the Soviet Union in 1950-1991. However, the
analysis of technology transfer has not given a precise answer about its impact on export and
import. Namely, the results of estimation suggested a possibility of positive as well as negative
interaction between variables. The difference resulted from an index that represented technology
transfer and was applied in the gravity equation in order to represent an international movement
of this production factor.
After the collapse of the Soviet Union and dissolution of Comecon, there was a strict change in
the system conditions of international trade as well as the mobility of production factors. There
were many reforms carried out in Poland as well as in Russia in order to conduct the transition
and implement the market economy. The estimation of augmented gravity equation confirmed
that labor and capital affected positively the international trade between Poland and Russian in
1992-2013. This relationship was especially important in case of Polish export to Russia.
However, there was no strict answer in case of technology transfer. The reason of this problem is
related to the diminishing scale of this kind of economic cooperation between the examined
countries. To recap, the research confirmed that in the long run, there was positive influence of
labor and capital transfer on international trade with goods between Poland and Russia. It was
also proved that a gravity model could be applied to examine the planned economy.
The market-oriented reforms implemented after 1991 changed the conditions of economic
cooperation between Poland and Russia. In consequence, several long-term patterns of
international trade as well as factor of production movement between those countries emerged.
On one hand, they resulted from the economic interrelations that arose during the years of
cooperation within Comecon. On the other hand, they emerged due to the new possibilities of
transnational expansion of enterprises. Until 2013 the trade with goods between Poland and
Russia was relatively firm and predictable. Polish import from Russia was dominated by the
natural resources whereas Polish export included mainly machines, half-finished products and
food. However, the Polish-Russian relationships worsened due to the crimean crisis at the
beginning of 2014. In consequence, several sanctions between the EU and Russia were imposed.
7 It is therefore difficult to foresee the development of economic relationships between Poland and
Russia in the next few decades.
Several scenarios were presented in the doctoral dissertation. The historical data was used in
order to estimate the international trade between Poland and Russia till 2030. The most probable
scenario assumes that the Polish-Russian international trade will continue to develop similarly to
the previous years.
8