Trade integration, institutions and export specialization

Traditional and new trade theories predict increasing specialization as trade costs are reduced. Moreover, a growing literature points out the importance of institutions for trade and economic performance. This paper combines both literatures and investigates the empirical link between trade integration, institutions and export specialization. We study the evolution of export specialization in thirteen Central European countries over the period 1989-2000 as a result of decreasing tariffs and institutional reforms. Our estimates indicate that a reduction in tariffs between EU15 and Central Europe results in increased export specialization in Central Europe. In addition to trade integration, our results show that institutional reforms and in particular enterprise reforms such as credit and subsidy policies speed up export specialization signiffcantly.