European Trade and Foreign Direct Investment U-Shaping Industrial Output in Central and Eastern Europe: Theory and Evidence
IMF Working Papers, October 1, 1998
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Bibliographic details
- Authors: Patrick P. Walsh, Alexander Repkine
- Published: October 1, 1998
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451923278.001
Summary
- Examines industrial output in Bulgaria, Hungary, Poland, and Romania during 1989–95 in terms of pretransitional product trade orientation.
- Models growth of EU-oriented output within sectors, ex-post trade, and market liberalization as foreign direct investment induced Schumpeterian (vertical) waves of product innovation.
- Models growth of non-EU-oriented output within sectors as unobservable deterministic heterogeneity.
- Concludes that the gap in industrial output performance between Eastern European and former Soviet countries is mainly explained by the inherited presence of EU-oriented production and its unconstrained growth over the transition period.
Methods and Analytical Framework
- Geographic and temporal scope: Bulgaria, Hungary, Poland, Romania; 1989–95.
- Conceptual modeling:
- EU-oriented output growth → modeled as foreign direct investment induced Schumpeterian (vertical) waves of product innovation.
- Non-EU-oriented output growth → modeled as unobservable deterministic heterogeneity.
- Focus on pretransitional product trade orientation as key explanatory variable for differential industrial output growth during transition.
Key Findings
- The inherited presence of EU-oriented production prior to transition is the principal factor explaining superior industrial output performance in the studied Eastern European countries relative to former Soviet countries.
- Unconstrained growth of EU-oriented production over the transition period is central to observed industrial output gains.