DP1377 | Intra-Industry Trade, Foreign Direct Investment and the Reorientation of East European Exports

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In the first half of the 1990s many Central and East European countries (CEECs) experienced very high growth rates of exports to OECD nations. This paper investigates the contribution of sources of comparative advantage and economic restructuring on the pattern, composition and volume of trade. The importance of the redirection of traditional Council of Mutual Economic Assistance goods to OECD markets is found to be limited. A strong relationship is found to exist between export performance and growth in vertical intra-industry trade with the EU. The latter reflects the sourcing of inputs from EU firms, with associated transfers of technology and marketing-related services. Inflows of foreign direct investment are found to be highly correlated with the volume of intra-industry trade.