Trade and Industrial Upgrading in Countries of Central and Eastern Europe: Patterns of Scale and Scope-based Learning

The paper explores mechanisms that link trade and restructuring in countries of central and eastern Europe through a learning and industrial upgrading perspective. A theoretical model based on notions of scale (relative concentration in trade) and scope (changes in product variety) is introduced and applied, based on detailed product level data for six central and east European countries (CEECs). During the early transition period the dominant mode of learning was scope based learning represented by a continuous increase in number of new products. In the later transition period, scope based learning has been complemented by scale-based learning or increased concentration in exports with significant country differences. Hungary is the only economy whose industrial upgrading has been continuously based on a complementary increase in both the number of new products and increased specialization. An analysis, which is based on clusters of export products, shows the decreasing importance of commodities (homogenous goods) and a shift towards technology and labour intensive products to be a common trend. However, differences between central and east European countries are strong with respect to changes in both scale and scope dimensions in technology and labour intensive activities. These differences illustrate that trade based learning mechanisms - scale and scope - will have strong effects on differences in industrial upgrading between central and east European economies.