Does Product Differentiation Explain the Increase in Exports of Transition Countries?

This paper analyzes the increase in transition countries' exports to their nontraditional trade partners. It uses four different measures of product differentiation to determine the extent to which dynamics in product variety explain this phenomenon. It is found that opening up to new trade partners, at first, increases the number of sectors in which trade occurs. This is followed by a brief period of specialization in selected sectors, and finally, an increase in the number of varieties of products in these sectors. It is also found that the increase in product variety in Central and East European country (CEEC) exports has been much more substantial than it has been in the Commonwealth of Independent States (CIS), consistent with a much larger reorientation of CEEC trade with nontraditional partners.