Determinants of the export structure of countries in Central and Eastern Europe

The growth in exports from Central and Eastern Europe to Western markets suggests that entrepreneurs have responded to changed incentives by restructuring their production to capture new markets. The absence of change in the structure of exports, however, suggests that these restructuring efforts have not been significant. This article analyzes the magnitude of the change in export structure across the Central and Eastern European countries in 1990-95, focusing in particular on trade with the European Union. It finds that imports of intermediate inputs and machinery are an important determinant of the changes in export structure. Sourcing of inputs from abroad is a major factor underlying the expansion of exports to the European Union. Outward processing (subcontracting) arrangements and foreign direct-investment have a smaller impact. Except for Poland, inflows of foreign direct investment are statistically insignificant or negatively associated with measures of revealed comparative advantage. This suggests that foreign investors have chosen sectors in which the Central and Eastern European countries were not relatively specialized under central planning.