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Making Sense of the Soviet Trade Shock in Eastern Europe: A Framework and Some Estimates

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  • Dani Rodrik

Abstract

Eastern European countries have experienced sharp declines in real GDP since 1990. One of the reasons for this decline is the Soviet trade shock, deriving from the collapse of the CMEA and of traditional export markets in the Soviet Union. This paper is an attempt to quantify the magnitude of this external shock. A conceptual framework is developed to show that the shock has three distinct elements: (a) a terms of trade deterioration; (b) a market-loss effect; and (c) a removal-of-import-subsidy effect. Taking all three together, and also adding in Keynesian multiplier effects, the conclusion is that the Soviet trade shock accounts for all of the decline in Hungarian GDP, about 60 percent of decline in Czechoslovakia, and between a quarter and a third of the decline in Poland.

Suggested Citation

  • Dani Rodrik, 1992. "Making Sense of the Soviet Trade Shock in Eastern Europe: A Framework and Some Estimates," NBER Working Papers 4112, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4112
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    1. Gabor Oblath & David Tarr, 2017. "The Terms-of-Trade Effects from the Elimination of State Trading in Soviet-Hungarian Trade," World Scientific Book Chapters, in: Trade Policies for Development and Transition, chapter 13, pages 295-313, World Scientific Publishing Co. Pte. Ltd..
    2. Dani Rodrik, 1994. "Foreign Trade in Eastern Europe's Transition: Early Results," NBER Chapters, in: The Transition in Eastern Europe, Volume 2, Restructuring, pages 319-356, National Bureau of Economic Research, Inc.
    3. Peter B. Kenen, 1991. "Transitional Arrangements for Trade and Payments among the CMEA Countries," IMF Staff Papers, Palgrave Macmillan, vol. 38(2), pages 235-267, June.
    4. Landesmann, Michael & Székely, Istvan P., 1991. "Industrial Restructuring and the Reorientation of Trade in Czechoslovakia, Hungary and Poland," CEPR Discussion Papers 546, C.E.P.R. Discussion Papers.
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    Cited by:

    1. Michael Bruno, 1994. "Stabilization and Reform in Eastern Europe: A Preliminary Evaluation," NBER Chapters, in: The Transition in Eastern Europe, Volume 1, Country Studies, pages 19-50, National Bureau of Economic Research, Inc.
    2. Go, Delfin S., 1994. "Revenue uncertainty and the choice of tax instrument during the transition in Eastern Europe," Policy Research Working Paper Series 1330, The World Bank.
    3. Thomas Moutos, 1998. "Trade in quality goods, trading regimes and unemployment in transition economies1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 6(2), pages 397-408, November.
    4. Pastor, Manuel Jr & Zimbalist, Andrew, 1995. "Waiting for change: Adjustment and reform in Cuba," World Development, Elsevier, vol. 23(5), pages 705-720, May.
    5. Dani Rodrik, 1994. "Foreign Trade in Eastern Europe's Transition: Early Results," NBER Chapters, in: The Transition in Eastern Europe, Volume 2, Restructuring, pages 319-356, National Bureau of Economic Research, Inc.
    6. Paul Hare & Alan Bevan & Jon Stern & Saul Estrin, 2000. "Supply Responses in the Economies of the Former Soviet Union," CERT Discussion Papers 0009, Centre for Economic Reform and Transformation, Heriot Watt University.
    7. Kazimierz Stanczak, 1994. "Endogenous Market Power and Adjustment under Fixed Exchange Rates: Interpreting the Polish Experience 1990-1991," UCLA Economics Working Papers 714, UCLA Department of Economics.
    8. Chris Melliss & Mark Cornelius, 1994. "New currencies in the Former Soviet Union: a recipe for hyperinflation or the path to price stability," Bank of England working papers 26, Bank of England.
    9. Michael Bruno, 1993. "Stabilization and the macroeconomics of transition ‐ How different is Eastern Europe?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 1(1), pages 5-19, January.
    10. Joshua Aizenman & Peter Isard, 1993. "Resource Allocation During the Transition to a Market Economy: Political Implications of Supply Bottlenecks and Adjustment Costs," NBER Working Papers 4366, National Bureau of Economic Research, Inc.
    11. Yingyi Qian & Gerard Roland & Chenggang Xu, 2001. "Attribute Coordination in Organizations," Annals of Economics and Finance, Society for AEF, vol. 2(2), pages 487-518, November.
    12. Commander, Simon & Coricelli, Fabrizio, 1992. "Output decline in Hungary and Poland in 1990-91 : structural change and aggregate shocks," Policy Research Working Paper Series 1036, The World Bank.
    13. Bouev Maxim & Matveenko Vladimir & Vostroknutova Ekaterina, 1998. "Transformational Decline and Preconditions of Growth in Russia," EERC Working Paper Series 98-03e, EERC Research Network, Russia and CIS.
    14. Kazimierz Stanczak, 1992. "A Devaluation With Labor-Intensive Trading and Inelastic Labor Supply," UCLA Economics Working Papers 683, UCLA Department of Economics.
    15. Lengyel, Balázs & Elekes, Zoltán, 2020. "A külföldi tulajdonú vállalatok és az import szerepe a hazai térségek exportjának diverzifikációjában [Foreign-owned firms and the role of their imports in diversifying Hungarys exports]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 352-378.
    16. Avanesyan, Vahram & Freinkman, Lev, 2002. "Costing-out the Big Bang: Impact of external shocks on the Armenian economy at the outset of transition," MPRA Paper 10012, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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