World Bank study: Exports in Eastern Europe

Europe_Map_sm.gif In the recent week I have been very mentally preoccupied with what is on going in the moment concerning 12 cartoons in a Danish Newspaper. However, it will probably be healthy for me to get my mind on something else. Reading through this week's issue of the Economist we find a pointer to an interesting World Bank Study about Eastern Europe and the former Soviet Union in international trade; see the Economist article here.

The study reveals good news on a whole as all Eastern European countries are more integrated into the global economy sinc the fall of Communism. This is hardly surprising though and digging deeper into the argument and reasearch we find that the development has caused a split in Eastern Europe.

From the Economist;

"On one side are countries now tightly integrated into the world economy: chiefly, eight new members of the European Union, such as Poland and Estonia. On the other are the 12 countries of the Russian-dominated Commonwealth of Independent States (CIS), where foreign trade is backward in both quality and quantity (...)"

More specifically the study distinguishes between the two groups of countries based on the measures mentioned below:

From the paper;

"The two blocs have begun to coalesce in terms of:

• Volume and direction of trade flows
• Commodity composition and factor intensity of trade
• Export competitiveness
• Development of trade facilitation institutions and infrastructure
• Extent of intraindustry trade, both in the services sectors and by
participation in global production-sharing networks through FDI
• Extent to which trade flows enhance domestic competition and
governance, and vice versa."

The study reveals that those contries which are Euro-centric are fairing best because they have been able to reform and provide competition friendly environments. The pivotal concept here is trade facilitation which occurs as countries rid themselves of corruption, and rigid bureaucracies. 

From the Economist;

"The underlying message is that clean, competition-friendly countries do well. Foreign investment, good scores in corruption indices, and low barriers to the entry of new firms and the exit of failing ones (such as crunchy bankruptcy laws) are strongly correlated with high shares of imports and exports in GDP."


In short, it is reforms “behind the border” that count. Foreign trade is highly beneficial—but ultimately it is a symptom of success, not a cause."

I hardly think the conclusions here are surprising but held up against a general discussion about whether the enlargement was a good idea for the selected countries in Eastern Europe the study do seem to provide extensive empirical evidence. The message is then that opening up your markets is the way to go. Following this, the study pushes for more "behind-the-border" reforms which basically translates into liberalization.

From the paper;

"Without such reforms, two trading blocs will continue to emerge: one faster-reforming, richer group of countries with ties to Western Europe, and a second, slower-reforming, poorer group focused on Russia."

Basically I agree, but on the other hand the liberalization argument is a traditional World Bank chant but that, admittedly, does not make it wrong.