Trade in Western and Eastern Europe in the aftermath of COMECON: an assessment of behavioral change

In the early 1990s, leading economists have predicted huge unexhausted trade potentials associated with the political restraints under the COMECON regime. Besides the low Eastern per capita GDP figures associated with limited access to frontier technologies, the political regulation of West-East and also intra-East trade per se lead to discrepancies in the behavioral relationships. This paper addresses the question of whether changes in the determinants of trade such as market size and relative factor endowments or economic behavior (the different sensitivities of trade to its determinants) were responsible for these findings. Our empirical evidence from a large panel of bilateral European trade flows suggests that the conclusions differ sharply for East-West versus intra-East trade. Concerning East-West trade we observe pronounced convergence in behavior to intra-Western standards between the second and fourth considered phase of transition while for intra-East trade there is no such convergence in behavior. Copyright 2007, Oxford University Press.