Transition in Central and East European countries (CEECs) and the collapse of the Council for Mutual Economic Assistance have had a significant impact on the structure of bilateral trade and investment flows with the EU. In Discussion Paper No. 1005, Sophia Dimelis and Research Fellow Konstantine Gatsios analyse the trade and investment effects of economic reforms in the CEECs on Greece. They find that Greek trade vis-à-vis the CEECs is different from that of other EU countries in that Greece's most important trading partners are the Balkan states rather than the Visegrád countries.

Greek trade with the CEECs has achieved impressive growth rates, almost exclusively as a result of an expansion in Greek exports. A gravity model, which provides a long-run equilibrium view of trading patterns by combining three determinants of the size of bilateral trade flows (the importer's demand, and the exporter's supply and costs of doing business), suggests that this trend will continue in the medium term. At the sectoral level, the surge in Greek exports is concentrated in traditional exports and capital-intensive goods, representing intra-industry flows. This indicates the potential for Greece in achieving economies of scale and a more efficient division of labour. Greek foreign direct investment flows in the CEECs are also concentrated in the Balkan states, and related to growing industrial sectors. Greece is called upon to play a central role in trade and investment in the emerging markets of the Balkan states. To realize this aim, a liberal attitude by the EU towards CEEC trade is essential.

Trade with Central and Eastern Europe: The Case of Greece
Sophia Dimelis and Konstantine Gatsios

Discussion Paper No. 1005, September 1994 (IT)