Abstract:
During the past decade, Eastern European exports have undergone a deep transformation, as
communist bloc trading relationships have collapsed and trade with the West has increased. The
extent of this geographical re-orientation has generally exceeded the predictions of equilibrium models
developed by Hamilton and Winters (1992) and Collins and Rodrik (1991), suggesting the prospect for
increased export activity among the transition economies as aggregate demand in these countries
strengthens and payment systems mature. Significant changes in the product composition of
Eastern European exports have accompanied the geographical reorientation. Exports of manufacturing
goods to former communist countries have declined sharply, but exports to the EC across an array of
goods -- including heavy machinery -- have grown robustly. Evidence suggests that the observed
changes in export composition reflect the redirection of physical goods through price competition and
the emergence of market-determined comparative advantage.
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