Structural Change, Innovation and Growth in the Context of EU Eastern Enlargement

EU Eastern enlargement has brought trade creation, growth and shifts in trading patterns in the context of opening up, structural change, foreign direct investment and rising domestic investment. We focus on outsourcing and changes in relative prices, RCAs, and export unit values in new EU member states. From a theoretical perspective, it is argued that real exchange rate changes, shifts of RCAs, as well as product innovations/product upgrading will influence the pattern of foreign direct investment. Thus a hybrid Heckscher-Ohlin-Dunning-Schumpeter perspective is an adequate approach. From an empirical point of view, the results of a dynamic panel estimation reveals that industrial production, export unit values, FDI and wages are the most important factors driving comparative advantages in trade. However, their impact and significance depends to a great extent on whether we deal with labour intensive industries, high technology industries or total manufacturing.