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Abstract:
During the past decade, Eastern European exports have undergone a deep
transformation, as communist bloc trading relationships have collapsed and
trade with the West has increased. The extent of this geographical
re-orientation has generally exceeded the predictions of equilibrium models
developed by Hamilton and Winters (1992) and Collins and Rodrik (1991),
suggesting the prospect for increased export activity among the transition
economies as aggregate demand in these countries strengthens and payment
systems mature. Significant changes in the product composition of Eastern
European exports have accompanied the geographical reorientation. Exports of
manufacturing goods to former communist countries have declined sharply, but
exports to the EC across an array of goods -- including heavy machinery -- have
grown robustly. Evidence suggests that the observed changes in export
composition reflect the redirection of physical goods through price
competition and the emergence of market-determined comparative advantage.
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