Price versus quality competition in Italys trade with central and eastern Europe aver the transition

This paper is an investigation on the main changes observed in the Italian trade with a group of Eastern European economies over the period 1988-1997, during which Italy has become the second EU trade partner for Eastern Europe after Germany. Eastern European countries show patterns of specialisation very similar to the Italian ones, in as much as they are based on "traditional" sectors, with an high intensity of labour and physical capital. Moreover, the evolution of comparative advantages suggest that a tendency exist: towards an increasing specialisation of the CEECs in labour intensive productions. There are signals of a possible conflict with the typical Italian pattern of export. An econometric test of the relationship between Italy-CEE comparative advantages and industry factor intesities using a simple of 3-digit NACE industries confirms the presence of a structural shift in favour of labour-intensitive productions, besides the persistence of the old specialisation of transition economies in capital.intensive industries. When intra-industry trade is considered, it appears that vertical product differentiation explains a relevant share of two-way trade. All the results seem to concur to the conclusion that no serious displacement should come to the Italian export from Eastern Europe competition. However, an econometric test of the employment effects associated with trade of different quality with the CEECs confirms the importance of monitoring the future evolution of vertical and horizontal intra-industry trade.