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A massive surge in foreign investment, beginning with the transition to an enlarged European Union, has contributed strongly to the automobile sector's reorganization in Central and East European countries (CEECs). In an attempt to complement the essentially qualitative literature on the subject, this paper proposes an original empirical approach to evaluate the maturity of the CEEC automobile sector and its integration into the European automobile production network. Relying on six-digit-level disaggregated data on the CEEC automobile sector's trade within Europe for the period 1993-2003, the paper analyzes the composition of trade as well as the evolution of the CEECs' intraindustry trade (IIT). First, the results demonstrate that core CEECs no longer show any sign of a technological deficit or maturity gap vis-à-vis their partners from the ex-EU-15, with whom they reached high levels of IIT, whereas peripheral CEECs continue to accommodate infant industries that generate little IIT. Second, the econometric analysis confirms that the high levels of IIT between core CEECs and their neighboring countries in the ex-EU-15 are a consequence of the production process's decomposition within the central basin, initiated by important foreign direct investment relocation flows. These results, based on the largest available data set over the transition period, confirm that the heart of the sector, previously centered on Germany, has extended to the CEECs of Central Europe, whereas Baltic and Southern CEECs remain hardly integrated. In the long run, the successful integration of core CEECs should reinforce the German pole in the European Union and have a major effect on the European automobile sector's geography. [ABSTRACT FROM AUTHOR]

This paper estimates a labor demand equation based on the panel data of the manufacturing industries in the Central and East European countries of Czech Republic, Hungary, Poland, Slovakia, Slovenia, Lithuania, Bulgaria, and Romania. It tests the effect of domestic factors (wages and output) and international factors (exports, imports, and foreign direct investment, or FDI) on employment during the era of post-transition recovery. The findings indicate that employment does not respond to wages in more than half the cases. The output elasticity of labor demand is mostly positive, but low; in a number of cases, employment is completely delinked from output. An impressive speed of integration to the European economic sphere through FDI and international trade has not prevented job losses in the manufacturing industry. There are very few cases of positive effects, but insignificant effects of trade and FDI dominate the findings, with some evidence of negative effects as well. [ABSTRACT FROM AUTHOR]

This paper analyzes the increase in transition countries' exports to their nontraditional trade partners. It uses four different measures of product differentiation to determine the extent to which dynamics in product variety explain this phenomenon. It is found that opening up to new trade partners, at first, increases the number of sectors in which trade occurs. This is followed by a brief period of specialization in selected sectors, and finally, an increase in the number of varieties of products in these sectors. It is also found that the increase in product variety in Central and East European country (CEEC) exports has been much more substantial than it has been in the Commonwealth of Independent States (CIS), consistent with a much larger reorientation of CEEC trade with nontraditional partners. [ABSTRACT FROM AUTHOR]

This paper analyzes the validity of purchasing power parity (PPP) across twelve Central and Eastern European countries (CEECs). PPP is tested through linear and nonlinear unit root tests. The results suggest that when structural changes and nonlinearities are accounted for, the PPP hypothesis is supported for the CEECs. [ABSTRACT FROM AUTHOR]

The establishment of Economic and Monetary Union in January 1999 was an important step in the process of European economic integration. Full financial market integration is one of the inevitable conditions for successful introduction of common currency, so the currency could circulate within the monetary union without any barriers. This allows more efficient allocation of the capital. This paper is focused on the analysis of the international investment positions of eight new EU member countries as one of the possible ways of measuring the level of financial integration. [ABSTRACT FROM AUTHOR]

This paper analyzes the development of the external balance in five Central and East European countries: Czech Republic, Hungary, Poland, Slovakia, and Slovenia. The paper applies, expands, and empirically verifies the ideas of life-cycle theory in the area of the effects of foreign direct investment on the balance of payments in transition countries. The article defines and explores the basic general stages in the external balance of a transition country. The definition of the stages draws from a model of consumer behavior within the life-cycle theory. The external balance stages are defined as follows: young transition economy, mature transition economy, posttransition economy, and expanding economy. The paper develops a model that provides criteria that not only classify the current stage of each transition country, but also evaluate the success in the catching-up process of the country examined. [ABSTRACT FROM AUTHOR]

The enlargement of the European Union raises a series of questions related to new member states' entry to the EU's exchange rate mechanism II (ERM II) and their subsequent adoption of the euro. This paper considers how to determine the best initial central parity for new EU member states from Central and Eastern Europe toward entering ERM II. This is followed by a discussion of the asymmetric nature of the fluctuation bands around a central parity that could be deemed as compatible with the Maastricht criterion on exchange rate stability, i.e., within the officially announced ±15 percent fluctuation margins, at about +2.25 percent on the weaker side, with significantly more scope for appreciation on the stronger side. Thereby, the practices of the European Monetary Institute/European Central Bank and the European Commission are compared when assessing the Maastricht criterion. With this as a background, a hypothetical ERM II is constructed for four new EU member states with flexible exchange rate regimes, namely, the Czech Republic, Hungary, Poland, and Slovakia, to assess, ex post, the hypothetical fulfillment of the Maastricht criterion by these countries. Based on such an examination, fulfilling the criterion may prove a tricky task, which, inter alia, suggests the need for the careful selection of an appropriate initial ERM II central rate. [ABSTRACT FROM AUTHOR]

This paper studies the degree of exchange rate pass-through to the prices of imports in eleven new member states (NMSs) of the European Union and one candidate country, Turkey, analyzing some of its structural determinants. This analysis is based on a vector autoregressive (VAR) model that partly includes the distribution chain of prices (import prices and consumer prices). I observe how the size and speed of the pass-through decrease along the distribution chain. Exchange rate pass-through is larger for these developing countries than that derived in previous studies of the United States and euro area. I also find evidence for Taylor's (2001) hypothesis of a positive relation between the degree of the exchange rate pass-through and inflation, observing less inflation and long-run exchange pass-through in inflation targeting countries, such as Hungary, Poland, and the Czech Republic. The relation between exchange rate pass-through and openness is unclear. Finally, I analyze exchange rate pass-through by industry, comparing results in the manufacturing and energy sectors and finding evidence of a larger response in energy than in manufacturing. [ABSTRACT FROM AUTHOR]

The aim of this paper is to conduct a growth accounting exercise for twentyseven transition economies in Central and Eastern Europe and the Commonwealth of Independent States. The analysis is divided into two parts. In part one we discuss the most salient features of these countries' growth paths between 1990 and 2003. The objective of the second part is to establish what proportion of the real GDP growth resulted from increased inputs of labor and capital and what was the contribution to growth of increased productivity of these factors (TFP). Our analysis has shown that changes in TFP were the most important driving force behind the GDP growth in former socialist countries. [ABSTRACT FROM AUTHOR]

This paper analyzes the real economic convergence between the new EU entrants in Central and Eastern Europe (CEE-8) and the EU core (EU-12 or EU-15). It includes new estimates on the speed of income-level convergence and new findings about the conformity of cyclical changes. The results offer further evidence of continuous progress in real economic convergence between Central and Eastern Europe and the European Union. [ABSTRACT FROM AUTHOR]

This paper aims to test several hypotheses on determinants of the quality of trade in cross-country regressions, taking a sample of trade competitors in EU markets. The hypotheses are those underlying two models of vertical intra-industry trade: the so-called neo-Heckscher-Ohlin model, and an economic geography model based on market size and economic integration. The explanatory variables significantly affect the dependent variable, and we conclude that these variables give rise to specialization in different segments of the quality spectrum. Information is drawn from the analysis with respect to Central and Eastern European (CEE) specialization in low-quality exports to EU markets. In particular, the estimates suggest the existence of a process of the "crowding out" of existing human capital due to the process of economic transition. Moreover, the smaller market size of the EU-accession countries could contribute to strengthening the CEE disadvantage in high-quality segments of production. [ABSTRACT FROM AUTHOR]

Amazement and surprise were the common reactions of Western political scientists to the fall of communism; they did not foresee, nor could they explain, the collapse of the regime. This paper argues that the reason why Western political scientists could not foretell the fall of the communist system was their overcommitment to artificial models of society and their lack of concern with economics. Western political science, especially, overlooked how the concept of privatizing the economy affected the devolution of the communist order, in contrast, I examine the question of the "sudden revolution" in the historical context and in the context of the privatization of the economy. The privatization of the economy, or rather, the specific ways privatization is conducted, is the main factor that explains the "peaceful collapse" puzzle and the newly emerging tensions as well. The paper consists of two parts. In the first part, "Trismus," I argue against the picture of Central Europe painted by Western political scientists. The question "Why did the communist order, a regime that defended itself stubbornly for a long time, at last collapse peacefully?" concludes the first part and opens the second, "Transformation." The point "Nomenklatura Chrysalis" is crucial for solving the puzzle of the "sudden" and peaceful fall of communism. In the conclusion, I refer to the current, and probably future, economic and political tensions that are likely to emerge in countries undergoing ownership transformations. Eventually this involves me in Fukuyama's proposition of the "end of history." Amazement and surprise were the common reactions of Western political scientists to the fall of communism; they did not foresee, nor could they explain, the collapse of the regime. This paper argues that the reason why Western political scientists could not foretell the fall of the communist system was their overcommitment to artificial models of society and their lack of concern with economics.... [ABSTRACT FROM AUTHOR]

According to economic theory, a capital inflows reversal-the sudden stop- has a significant negative effect on economic growth. This article investigates the direct impact of current account reversals on growth in Central and Eastern European countries. Two steps to conduct the analysis are applied. In the first step, the standard growth equation is estimated when including the current account reversal impulse dummy. I find that after a current account reversal, the growth rate declines by 1.10 percent in the current year The subsequent analysis of the adjustment dynamics builds upon the notion of convergence. The unconditional and conditional convergence coefficients are found to be -0.47 and -0.52, respectively. This implies that the consequences of the reversal are likely eliminated after 3.3 years when the actual growth rate is back at its equilibrium level, ceteris paribus. Finally, the cumulative loss associated with a sudden stop in capital flows is about 2.3 percent. One may infer that Central and Eastern European countries are relatively flexible in terms of adjustment and reallocation of resources given the findings in similar literature examining either a more general sample or concentrating on rather different regions. [ABSTRACT FROM AUTHOR]

Present-day Central and East European agriculture is characterized by a high incidence of small-scale farmers who are not producing for the market. This article uses household-level data from comparative farm surveys in Albania, Bulgaria, Hungary, and Romania to analyze the extent of subsistence farming and to investigate which farm household characteristics and endowments influence commercialization of agricultural produce. [ABSTRACT FROM AUTHOR]

Studies the properties of business cycles in seven Central and East European countries (CEEC-7). Comparison of the length of the business cycles in the CEEC-7 and the Organization for Economic Cooperation and Development; Synchronization in countries where greater internationalization of enterprises and greater product and financial market linkages to EU markets are present.

Focuses on study of exchange rates of Central European countries. Relation of currency basket to exchange rates; Use of data of exchange rates between Czech Koruna and six other currencies; Similarity in behavior of exchange rates of the Czech Koruna and other currencies and other exchange rates that are free to float.