DP653 Industrial Policy and Restructuring in Eastern Europe
Using input-output and world price data, this study computes domestic resource costs (DRCs) for branches of manufacturing industry in Bulgaria, Czechoslovakia, Hungary, Poland and the former Soviet Union. The results show a wide dispersion of DRCs in each country, including branches with negative value added at world market prices. Restructuring each economy towards the more competitive branches raises value added at world prices and usually raises employment as well. Since the countries studied are competitive in different sectors, there is little need for them to coordinate industrial policies, but there would be great benefit from schemes to facilitate intraregional trade (e.g. some form of union). The region's present trade with the EC accounts for a small fraction of most EC markets and hence Eastern Europe should not be seen as a threat by EC producers: there is scope for faster liberalization of access to EC markets.