Comparative Advantages, Transaction Costs and Factor Content in Agricultural Trade: Empirical Evidence from the CEE

The present study examines factor contentin the CEE transition country agricultural trade.However, deviating from the traditional approach, wedo not test the HOV prediction. Instead, we examine thetheoretical predictions that relate the factor content ofinternational trade to cross-country differences intechnology and endowments. Our empirical findingssuggest that factor content between agricultural exportsand imports is rather similar in CEE. In order toexplain the general lack of the CEE agriculturalspecialisation and the observed paradox, we attempt toidentify the role of transaction costs and marketimperfections in determining factor content inagricultural production and trade. We find thattechnological differences and factor endowment are onlyweak determinants of country specialisation.Transaction costs and market imperfections distort farmspecialisation and organisation in CEE, and hence factorcontent in traded agricultural goods.