European Trade and Foreign Direct Investment U-Shaping Industrial Output in Central and Eastern Europe: Theory and Evidence

Author/Editor:

Patrick P. Walsh ; Alexander Repkine

Publication Date:

October 1, 1998

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We examine industrial output in Bulgaria, Hungary, Poland, and Romania during 1989–95 in terms of pretransitional product trade orientation. The growth of EU-oriented output within sectors of industry, ex-post trade, and market liberalization, is modeled as foreign direct investment induced Schumpeterian (vertical) waves of product innovation. The growth of non-EU-oriented output within sectors is modeled as unobservable deterministic heterogeneity. The results indicate that the gap observed in industrial output performance when comparing Eastern European to former Soviet countries is mainly explained by the inherited presence of EU-oriented production and its unconstrained growth over the transition period.

Series:

Working Paper No. 1998/150

Subject:

Balance of payments Economic sectors Exports Foreign direct investment Industrial sector International trade Production Production growth Trade liberalization

English

Publication Date:

October 1, 1998

ISBN/ISSN:

9781451923278/1018-5941

Stock No:

WPIEA1501998

Pages:

34

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