Working Paper: CEPR ID: DP705
Authors: Dani Rodrik
Abstract: East European countries have experienced sharp declines in real GDP since 1990. One of the reasons for this decline is the Soviet trade shock caused by the collapse of the CMEA and of traditional export markets in the Soviet Union. This paper is an attempt to quantify the magnitude of this external shock. A conceptual framework is developed to show that the shock has three distinct elements: (a) a terms-of-trade deterioration; (b) a market-loss effect; and (c) a removal-of-import-subsidy effect. Combining these three effects and adding Keynesian multiplier effects, the conclusion is that the Soviet trade shock accounts for all of the decline in Hungarian GDP, about 60% of the decline in Czechoslovakia, and between one-quarter and one-third of the decline in Poland.
Keywords: Eastern Europe; Soviet trade shock; CMEA
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 |
|---|---|
| Soviet trade shock (P33) | decline in GDP in East European countries (P27) |
| terms-of-trade deterioration (F14) | decline in GDP (E20) |
| market loss effect (G14) | decline in GDP (E20) |
| removal of import subsidies (F14) | decline in GDP (E20) |
| Soviet trade shock (P33) | terms-of-trade deterioration (F14) |
| Soviet trade shock (P33) | market loss effect (G14) |
| Soviet trade shock (P33) | removal of import subsidies (F14) |
| decline in GDP in East European countries (P27) | Hungary's GDP decline (E20) |
| decline in GDP in East European countries (P27) | Czechoslovakia's GDP decline (P24) |
| decline in GDP in East European countries (P27) | Poland's GDP decline (N14) |