European Trade and Foreign Direct Investment U-Shaping Industrial Output in Central and Eastern Europe: Theory and Evidence

Patrick Walsh () and Alexander Repkine

No 1998/150, IMF Working Papers from International Monetary Fund

Abstract: We examine industrial output in Bulgaria, Hungary, Poland, and Romania during 1989–95 in terms of pretransitional product trade orientation. The growth of EU-oriented output within sectors of industry, ex-post trade, and market liberalization, is modeled as foreign direct investment induced Schumpeterian (vertical) waves of product innovation. The growth of non-EU-oriented output within sectors is modeled as unobservable deterministic heterogeneity. The results indicate that the gap observed in industrial output performance when comparing Eastern European to former Soviet countries is mainly explained by the inherited presence of EU-oriented production and its unconstrained growth over the transition period.

Keywords: WP; rate of return; Foreign Direct Investment; Industrial Output Growth; Transition Economies; Cross-Country and Branches of Industry Regressions; EU export; EU product; EU trade shock; EU market; EU foreign direct investment; EU investor; Exports; Industrial sector; Trade liberalization; Production growth; Central and Eastern Europe (search for similar items in EconPapers)
Pages: 34
Date: 1998-10-01
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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1998/150

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