Central East European Countries’ Accession into the European Union: Role of the Extensive Margin for Trade in Intermediate and Final Goods

  • Abstract:

    We study the effect on trade in intermediates and final goods of the Central East European countries’ (CEECs) accession into the European Union (EU) for the period 1999-2009. In doing so, we estimate a gravity model that incorporates the extensive margin of trade and accounts for firm heterogeneity. We capture the importance of production networks by including imports of intermediates as a determinant of a country’s exports of final goods. We find a positive and significant effect of the CEECs-accession on EU trade in intermediate and final goods. Once the extensive margin of trade is accounted for, the effect of the CEECs accession into the EU is higher on trade in intermediate goods than on trade in final goods. In this paper we look at the growth enhancement and growth retardation of major Central and East European countries (CEEC) during the last decade or so. We observe large advances in growth rates, in the early part of the 2000s, and then a rapid contraction after 2008. This rise and fall in economic growth is mirrored by the corresponding rise and fall of Foreign Direct Investment (FDI). We investigate the causes and consequences of this growth transformation through the prism of foreign direct investment. We emphasize the structural changes necessary to re-ignite growth without which the CEEC will revert back to the stagnation of the historical past.

 

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