Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 11: Intra-industry trade between the EU and the acceding countries: the impact of foreign direct investment on trade structures
Jarko Fidrmuc and Martin Djablik1 1. INTRODUCTION Recent economic developments in the acceding countries reﬂect the fact that, ﬁrst, macroeconomic and microeconomic disequilibria were rapidly removed during the initial years of economic reform and that, second, economic developments in the (largely) transformed economies remain more dynamic than those in OECD countries. The stabilization policy proposed in Central and Eastern Europe to reach macroeconomic as well as microeconomic equilibrium necessitated dramatic adjustments in the initial years of economic reform. Following the removal of price controls, high inﬂation or even hyperinﬂation was observed, but inﬂation quickly stabilized at relatively low rates (see Backé et al., 2003). In the more advanced Central and Eastern European countries (CEECs) it took just a few years to remove ineﬃcient production structures and nearly complete privatization (see Djankov and Murrell, 2002). As a result, the CEECs experienced output declines by a signiﬁcant fraction of GDP and unemployment peaked at internationally high levels (see Svejnar, 2001). Fundamental changes have also been observed in the CEEC’s trade orientation. Based on gravity model predictions, Hamilton and Winters (1992) foresaw a signiﬁcant growth spurt to the ‘potential level’ of trade between CEECs and the EU. Fidrmuc and Fidrmuc (2003) document that, with the most recent eﬀorts, this adjustment to the equilibrium level has nearly been completed. This chapter compares the patterns of EU trade between 1989 and 2001 with OECD countries (including intra-EU trade) on the one hand and with the acceding countries...
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