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N° 1999 - 05 |
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| April |
Central and Eastern European Countries
in the International Division of Labour in Europe |
Michael Freudenberg
Françoise Lemoine |
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Ten countries in Central and
Eastern Europe have applied for EU membership . All ten countries have Association
agreements with the EU, which have liberalised most trade in industrial products.
In the perspective of their future integration in an enlarged EU, the present
paper analyses the position of the ten candidates in the international division
of labour in Europe, for the recent period (1993-1996).
The paper points out that beyond the relative stability in the pattern of comparative advantage observed at the industry level, changes are underway. The present pattern of comparative advantage may reflect more the past strengths of these countries than their future specialisation. First, trade of Central European countries has been characterised by a decrease of their revealed comparative advantages in the very sectors in which they were the strongest (mainly in clothing and footwear industries), as well as by a decrease of some of their largest comparative disadvantages. Second, in this short period of time, some countries succeeded in building new comparative advantages. Most remarkable changes took place in engineering industries in which Central European countries have achieved high export growth. Third, the involvement of foreign capital in manufacturing industry has reached high levels and has been an important element underlying export performance.
The patterns of CEECs’ trade with the EU and their implications was also analysed in the light of two phenomena: first, the international division of the production process (i.e. the international splitting of the value added chain) which allows an ever-deeper specialisation; second, intra-industry trade which may concern horizontally differentiated goods (exchanges of varieties) or vertically differentiated goods (exchanges of qualities).
The increasing share of intermediate products in the CEECs’ exports and imports over 1993-1996 period suggests that these countries are more and more involved in the international division of the production process within Europe. A closer investigation confirms that the international segmentation of production between the two parts of Europe which was in the past concentrated in traditional sectors (textile-clothing and leather-shoe industries), has recently been extended to other industries (electrical machinery, motor vehicles). The gap between EU and CEEC export structures remains large. But as CEEC domestic production incorporates an increasing proportion of imported inputs, it should lead to an improvement of their competitiveness in downstream sectors.
To assess the degree of (structural) asymmetry among Western and Eastern European countries and the potential effects on production structures, the paper also analyses the nature of trade in terms of inter-versus intra-industry trade, using the most detailed level of trade statistics.
One of the main findings is that trade with Balkan and Baltic countries remains almost exclusively one-way trade, thus corresponding to the traditional division of labour according to comparative advantage. In contrast, the EU’s trade with Central European countries (especially the Czech Republic, Hungary and Slovenia) shows up a significant, and rising, share of two-way trade, which suggests that their productive structures are progressively converging with those of Western Europe. The differences among the CEECs have implications for the adjustment costs as they are supposed to be much smaller in the case of intra-industry trade than for inter-industry trade, for which, increased specialisation implies the abandonment of contested, comparatively disadvantaged industries and the displacement of factors towards a limited number of export-oriented industries. However, a breakdown of two-way trade by product differentiation shows that two-way trade in vertically differentiated products (associated with a specialisation along quality ranges) is much more important and more dynamic than in horizontally differentiated goods (associated with a specialisation in varieties), and this for each country.
This leads to the more general question about the quality segments the CEECs are positioned on. The CEECs remain globally disadvantaged in up-market goods in their trade with EU countries, and advantaged in down-and medium-market goods. However, in all Central European countries the contribution to trade balance improved in up-market products and some of them show up a revealed comparative advantage in up-market goods in some of their leading industries. Another finding is that often, a structural surplus in one quality segment coexists with a deficit in another quality segment, within a same industry: This suggests a "qualitative" division of labour between Western and Eastern European countries. Between 1993 and 1996, the relative position in up-market products improved for all Central European countries, strongly contrasting with the situation of Balkan and Baltic countries. The scenario of the integration into the EU of a first wave of countries based on a "residual" specialisation on down-market products, with its correlative adverse consequences for catching-up, is not supported by the evidence at this stage. |
Abstract |
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| comparative advantage, foreign capital,
intra-industry, international division of the production process, Balkan and Baltic
countries, Central European countries, quality segments |
Keywords |
| F14, F15, F21 |
JEL classification |
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Annexes (pdf) |
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