Eastern European Export Performance during the Transition

During the past decade, Eastern European exports have undergone a deep transformation, as communist bloc trading relationships have collapsed and trade with the West has increased. The extent of this geographical re-orientation has generally exceeded the predictions of equilibrium models developed by Hamilton and Winters (1992) and Collins and Rodrik (1991), suggesting the prospect for increased export activity among the transition economies as aggregate demand in these countries strengthens and payment systems mature. Significant changes in the product composition of Eastern European exports have accompanied the geographical reorientation. Exports of manufacturing goods to former communist countries have declined sharply, but exports to the EC across an array of goods -- including heavy machinery -- have grown robustly. Evidence suggests that the observed changes in export composition reflect the redirection of physical goods through price competition and the emergence of market-determined comparative advantage.