NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Foreign Trade in Eastern Europe's Transition: Early Results

Dani Rodrik

NBER Working Paper No. 4064
Issued in May 1992
NBER Program(s):   ITI

By the end of 1991, Czechoslovakia, Hungary and Poland have achieved a substantial degree of openness to foreign trade. In all three countries, trade is now de-monopolized and licensing and quotas playa very small role. Exchange controls have virtually disappeared for current-account transactions. Judging by partner statistics, export performance has been impressive in all three countries, and import booms are under way in at least Hungary and Poland as well. However, there is no evidence that exporters have had any success in finding Western markets for the exports they have lost in Eastern markets. The collapse of the CMEA represents a significant shock, amounting to a loss of real income of 3 1/2 percent of GDP in Poland and 7-8 percent of GDP in Hungary and Czechoslovakia. Export performance is attributable to exchange-rate policy in part, but the collapse of domestic demand has possibly played an even more important role. Finally, trade liberalization so far appears to have had little effect on price discipline, in large part because of the substantial devaluations that have accompanied it

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