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

October 1, 1998

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.

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

Keywords: Central and Eastern Europe, Cross-Country and Branches of Industry Regressions, EU export, EU foreign direct investment, EU investor, EU market, EU product, EU trade shock, Exports, Foreign Direct Investment, Industrial Output Growth, Industrial sector, Production growth, rate of return, Trade liberalization, Transition Economies, WP

Pages:
34
Volume:
1998
DOI:
https://doi.org/10.5089/9781451923278.001
Issue:
150
Series:
Working Paper No. 1998/150
Stock No:
WPIEA1501998
ISBN:
9781451923278
ISSN:
1018-5941

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