Trade openness and vulnerability in Central and Eastern Europe

This paper offers a substantive contribution to the debate on the role of international trade on the development of emerging countries. The aim is to detect empirically the phenomenon of vulnerability induced by trade openness. The methodology adopts a forward-looking approach and tries to fill a missing link in the theory between trade shocks, volatility, and the wellbeing of countries, distinguishing between ‘normal’ and ‘extreme’ volatility. The analysis is focused on Europe, in consideration of the dramatic and unprecedented trade liberalization process experienced by the Central and Eastern European countries at the beginning of the 1990s. The main result of the analysis is that in spite of the apparent association between trade openness and good macroeconomic performance, Eastern European countries have experienced a worsening of their macroeconomic wellbeing because of the trade shocks of the early 1990s. This preliminary evidence, remarkably strong also in the case of the poorest sections of the population, spurs some relevant policy implications, both at the national and supranational levels.