Central and Eastern Europe: Export Platform for Investors?

Abstract

As measured by gains in their shares in international exports over the period 1985 to 2000, Hungary, the Czech Republic and Poland have successfully become export platforms for investors. The performance of other countries in Central and Eastern Europe has lagged behind in this respect. This article offers an empirical investigation into the reasons for this divergent performance, including an examination of the various strategies adopted by CEE countries to develop their export industries during their transition to market economies and the effects of those strategies. Central and Eastern Europe, when compared with other regions, has specialized its export-oriented FDI on selected, knowledge-intensive industries and activities, serving mostly the western European market. This is so because the countries of CEE cannot and should not compete with the scale of production and wage levels of East Asian locations. An additional handicap of CEE is the relatively nascent stage of the private sector, which further increases the reliance on FDI as a source of market access, technology and capital under the specific conditions of transition from centrally planned to market economies. This FDI in turn can benefit from the favourable geographical location of many of the CEE countries (close to western Europe) and their relatively well-trained labour force.

Keywords: exports, competitiveness, economies in transition, Czech Republic, Hungary, Poland

JEL Classification: F21, F23, F14, F43, O52