Command Economy after the Shocks of Opening up: The Factors of Adjustment and Specialisation in the Czech Trade

This analysis focuses on factors determining the transition of international trade in the Czech economy. Even though the Czech economy was exposed to several structural shocks during 1993–2002 and grew at a very low rate, its external trade flows sustained an annual growth at around 10%. The restructuring in the pattern of specialisation with the EU-15 was exceptionally intensive and our results confirm that its progress can be explained by the variables used in the theories of open economies. The undergoing changes were profound and painful, but their positive final outcome is undisputable. In the econometric part of this study we quantify the determining factors of Czech exports and imports during 1993–2002 when the trade flows have undergone intensive structural and qualitative changes facilitating the trade creation. Our findings lend significance to the variables of aggregate demand and the real exchange rate, in addition to liberalisation of tariffs, evolution of unit prices of exports and imports, changes in quality, diversion in factor usage and economies of scale. Unimpeded opening-up can be a crucial driver of an in-depth restructuring, which brings positive results from the very start, even though its spillovers into an overall fast growth can be delayed.