DP676 Foreign Trade in Eastern Europe's Transition: Early Results

Author(s): Dani Rodrik
Publication Date: June 1992
Keyword(s): Eastern Europe, Trade Policy
JEL(s): F13, F14, P33
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=676

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.