DP543 | Competitiveness and Industrial Restructuring in Czechoslovakia, Hungary and Poland

Publication Date

01/04/1991

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Abstract

Transition to the market in Eastern Europe will require a great deal of restructuring of production involving the contraction and even closure of certain branches and the expansion of others, including some new ones. In the course of this, many enterprises will have to be shut down. Unfortunately, even in the countries which have already undergone substantial price liberalization, there are still many distortions in the price system due to monopoly, remaining subsidies on production, and taxes related to trade (e.g. import duties). Consequently, evaluation of the profitability of firms or the branches in which they operate is likely to yield very misleading results if carried out at domestic prices. Accordingly, using detailed input-output data and information on world market prices for Czechoslovakia, Hungary and Poland, this paper seeks to recalculate value added for each branch in terms of world market prices. Having done this, domestic resource costs are calculated to allow branches to be ranked according to their profitability. The paper then examines the most profitable and least profitable branches in each country in some detail.