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How Much Restructuring did the Transition Countries Experience? Evidence from Quality of their Exports

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Abstract

The increase in exports to market economies is a good sign, but it is not conclusive about the extent of restructuring of production technologies experienced in transition countries. This paper explores the source of the increase with an analysis of their exports' quality, interprets the results for the extent of restructuring, and discusses the potential factors behind them. Changes in factor intensity and unit values of both Central and Eastern European countries (CEEC) and Commonwealth of Independent States (CIS) exports in different manufacturing sectors during 1992–1999 are analysed. Although CEEC are in a significantly better position than CIS due to Europe Agreements, there is still large number of products with structural problems in CEEC. Insufficient foreign domestic investment, the Outward Processing Trade in European Agreements, and not fully exploited human capital are suggested as possible factors.

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Notes

  1. Interim Agreements on trade with the EU became effective by 1991, in Hungary (HU), and Poland (PL), 1993 with Bulgaria (BG), the Czech Republic (CZ), Romania (RO), and the Slovak Republic (SK), and by the end of 1996 in Slovenia (SI), Estonia (EE), Latvia (LV), and Lithuania (LT). The Russian Federation (RU), Kazakhstan (KZ), Belarus (BY) formed the CIS customs union in 1995. Kyrgyzstan (KG) and Tajikistan (TJ) joined in by the end of 1995, and 1999, respectively. Other CIS countries, Armenia (AM), Azerbaijan (AZ), Georgia (GE), Moldova (MD), Turkmenistan (TM), Ukraine (UA), and Uzbekistan (UZ) did not participate in the customs union.

  2. These constitute the most important developed and developing partners with market economies: Austria, Belgium, Brazil, Canada, China, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong, Indonesia, Italy, Japan, Korea, Luxembourg, the Netherlands, Norway, Portugal, Philippines, Singapore, Spain, Sweden, Switzerland, Thailand, Turkey, the UK, and the US. Exports to these countries constitute 97.3% of transition exports to all market economies in the world.

  3. See Kandogan (1999) for lingering effects on CMEA on trade of transition countries in early years after its abolishment.

  4. Share of market economies in transition countries' manufacturing exports varies between 76% and 90%.

  5. In a relevant earlier research, Neven (1995) finds that CEEC exports to the EU were concentrated on products that were intensive in relatively unskilled labour during 1985–1990.

  6. Using a similar idea, Sheets and Boata (1998) take the extent of reorientation of trade from CMEA to the EU as a sign of restructuring: To the extent that industrial restructuring has taken place, the decline in CMEA exports should be related to expansion of exports to the EU with a lag, time needed to restructure. Price competition implies that decline in CMEA exports and increase in EU exports should be roughly contemporaneous.

  7. Products categories that transition countries were importing but unable to export are included in the group of traded products.

  8. The initial low proportion of products under quality improvement in relatively richer Slovenia and Hungary is most likely due to the fact that most products in these two countries were already of high quality, and not much further improvement was needed.

  9. Products categories that transition countries were importing but unable to export are assumed to have structural problems.

  10. In a relevant research, Stephan (2003) found the level of productivity in most advanced 6 CEEC to increase from 22% to 55% of the EU average in 1993 to 46% to 76% in 2000.

  11. Maquiladora Syndrome is the name given to the phenomenon of productivity gains without increases in real incomes that is observed in geographically convenient, low-wage labour force countries, such as Mexico, through multinational investments in labour-intensive sectors.

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Authors and Affiliations

  1. School of Management, University of Michigan-Flint, 303 E. Kearsley Flint, 48502, MI, USA

    Yener Kandogan

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APPENDIX 1

APPENDIX 1

SITC-3 CODES OF PRODUCTS IN EACH FACTOR CONTENT CATEGORIES

Resource intensive:511, 512, 513, 514, 562, 611, 613, 634, 635, 641, 652, 653, 654, 659, 661, 662, 663, 664, 665, 666, 671, 672, 673, 674, 675, 676, 677, 678, 681, 682, 683, 684, 685, 686, 687, 693, 694

Human capital intensive-low technology:553, 554, 592, 593, 711, 712, 713, 716, 742, 743, 762, 773, 793, 898

Labour intensive:612, 621, 625, 629, 633, 642, 651, 655, 656, 657, 658, 667, 692, 696, 697, 699, 721, 722, 724, 771, 784, 785, 786, 791, 812, 813, 821, 831, 841, 842, 843, 844, 845, 846, 848, 851, 885, 891, 892, 893, 894, 895, 897, 898, 899

Human capital intensive-medium technology-labour intensive:689, 691, 695, 723, 725, 726, 727, 728, 731, 733, 735, 737, 741, 744, 745, 746, 747, 748, 749, 751, 759, 761, 763, 764, 772, 774, 775, 811, 872, 873, 881, 884

Human capital intensive-medium technology-capital intensive:515, 522, 523, 524, 531, 532, 533, 551, 571, 572, 573, 574, 575, 579, 581, 582, 583, 597, 598, 679, 781, 782, 783, 882

Human capital intensive-high technology-labour intensive:714, 718, 776, 778, 792, 871, 874

Human capital intensive-high technology-capital intensive:516, 525, 541, 542, 591, 752

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Kandogan, Y. How Much Restructuring did the Transition Countries Experience? Evidence from Quality of their Exports. Comp Econ Stud 47, 543–560 (2005). https://doi.org/10.1057/palgrave.ces.8100057

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