How the market transition affected export performance in the Central European economies

Empirical studies have paid little attention to the supply-side forces behind the export performance of the Central and Eastern European countries of Bulgaria, Czechoslovakia, Hungary, Poland, and Romania (CEE-5) in OECD markets after the collapse of central planning. The author examines export developments in these countries in 1980-91, focusing on how transformation programs affected trade. OECD markets now receive three-fourths of CEE-5 exports. Sustaining this market penetration is crucial for countries making the transition to market-based economies. The author provides insight into the impact of transformation-cum-stabilization programs on export performance. These insights are relevant to former centrally planned economies that have yet to restore marcoeconomic equilibrium and to liberalize prices. The author examines the export performance of the CEE-5 before and after the collapse of central planning. He finds a close link between export performance and the decision to move quickly to a market-based economy. Countries that removed administrative controls on prices, devalued currency, introduced unified exchange rates, and liberalized trade also expanded exports. Bulgaria and Romania, crippled by macroeconomic chaos and vacillating macroeconomic reform, registered drops in both exports and imports. The author suggests that differences among Czechoslovakia, Hungary, and Poland (CEE-3) had little to do with previous trends in export performance, external economic factors, and earlier attempts at trade reform. The expansion of exports in 1990-92 represented a dramatic reversal of trends prevalent in the prior two decades. The surge in exports is explained neither by the length of time experimenting with foreign trade under central planning nor by earlier trends in competitiveness in OECD markets. The driving force of export growth was manufactures, some of them redirected from CMEA markets, primarily to Germany. The severing of links that used to bind the economies of the CMEA had a less destructive impact on the foreign trade performance of the CEE-3 than one might have expected. The fact that exports to the CMEA fell at the same time that exports elsewhere (often of the same products) increased suggests a causal relationship.