Growth performance and trade in Eastern Europe

Cristina Gaspar, Fordham University


The purpose of this dissertation is to study the growth performance of 4 Eastern European countries, Hungary, Poland, Czechoslovakia, Bulgaria, for the period between 1964 and 1991, and the contribution of foreign trade to growth. This model builds on a "Simultaneous Model of Trade and Development with Dynamic Policy Simulations" developed by Salvatore (1983). Key variables examined are: growth, investment, industrial performance and agricultural growth. The model was estimated using OLS, and serial correlation was corrected with the Maximum Likelihood method. The empirical results show that according to the basic pattern that was common to centrally planned economies, growth was driven by industry. This created a structural imbalance in their economies and supports the need for reforms that lead to structural adjustments taking into consideration the country's comparative advantage. Investment did not contribute significantly to growth due to the political nature of the process. Since a higher percentage of investments to GDP should, to lead to higher growth, it is clear that these countries need to privatize and allow the private sector to make efficient investment decisions. Eastern European countries had a low efficiency of their foreign trade operations, as reflected by the structural relationships between the exports variables and the dependent variables in the model. Exports are separated into exports to the West and to the East because of their completely different characteristics. Exports were dictated by political decisions rather than being determined by market forces. These results support the need for reforms to abolish the state monopoly of foreign trade and foreign exchange activity, the need to create a competitive environment and to integrate into the world economy. Eastern European countries should also reverse their policy of neglecting agriculture, since the results show that this sector can still contribute to their overall growth and provide increased export opportunities.

Subject Area

Economics|European history

Recommended Citation

Gaspar, Cristina, "Growth performance and trade in Eastern Europe" (1994). ETD Collection for Fordham University. AAI9425194.