Working Paper: CEPR ID: DP676
Authors: Dani Rodrik
Abstract: By the end of 1991, Czechoslovakia, Hungary and Poland had achieved a substantial degree of openness to foreign trade. In all three countries, trade is now demonopolized and licensing and quotas play a very small role. Exchange controls have virtually disappeared for current-account transactions. Judging by partner statistics, export performance has been impressive in all three countries, and import booms are under way in at least Hungary and Poland as well. There is no evidence, however, that exporters have had any success in finding Western markets for the exports they have lost in Eastern markets. The collapse of the CMEA represents a significant shock, amounting to a loss of real income of 3% of GDP in Poland and 7-8% of GDP in Hungary and Czechoslovakia. Export performance is attributable to exchange-rate policy in part, but the collapse of domestic demand has possibly played an even more important role. Finally, trade liberalization so far appears to have had little effect on price discipline, in large part because of the substantial devaluations that have accompanied it.
Keywords: trade policy; eastern europe
JEL Codes: F13; F14; P33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| collapse of the CMEA (P27) | loss of real income in Poland (F69) |
| collapse of the CMEA (P27) | loss of real income in Hungary and Czechoslovakia (P29) |
| collapse of the CMEA (P27) | economic performance (P17) |
| trade liberalization (F13) | reorientation in trade patterns (F12) |
| domestic demand collapse (R22) | export performance (F17) |
| trade liberalization (F13) | price discipline on domestic industries (L11) |
| substantial devaluations (F31) | external competition pressure (L19) |