Transcript from disintegration to reintegration

FROM DISINTEGRATION
TO REINTEGRATION:
EUROPE AND CENTRAL ASIA IN
INTERNATIONAL TRADE
Harry G. Broadman
Lead Economist and International Trade Policy Coordinator
Europe and Central Asia Regional Operations
The World Bank
March 30, 2005
Main Questions
1. How have the nature, extent and patterns
of international trade flows for the
countries in ECA changed since the
transition from communism to capitalism
and what do the current trends portend
for the future?
Main Questions (cont’d)
2. Why have some countries in the region
integrated internationally more then
others and what is the emerging
relationship between greater integration
and geography, policy reforms, growth
and poverty reduction?
Main Questions (cont’d)
3. What best determines how effective
ECA countries will be in using trade as a
lever for growth and poverty reductions
and what are the priority issues that
policy-makers in the region and the
international community should focus
on?
ECA is a diverse and heterogeneous region
of 29 countries/entities
A story of recession and recovery with different
faces: variation in macro performance in Central
Europe and Baltic countries vs. CIS
ECA: Real GDP Growth
7.5
5.0
Central Europe &
Baltic
Countries
2.5
-2.5
G
-5.0
-7.5
-10.0
-12.5
-15.0
ECA Region
CIS
2003p
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0.0
A fundamental linkage between the
transition and international integration
The transformation in ECA’s trade flows was
central and indispensable to the more wellknown economy-wide domestic changes
within the region toward reliance on
market systems and incentives and the
overall transition process
ECA first experienced disintegration…
In the early 1990s the break-up of a highly
integrated trade bloc with a unified
geographic-economic space that was
isolated from the global economic system
 Russia: aftermath of the collapse of the FSU
characterized by striking differences and weak
integration among the regions (e.g. Siberia)
 Armenia: direct and indirect trade shocks resulted in
85% loss in GDP
 Former Yugoslavia: its disintegration was punctuated
by war and blockages left the Western Balkans in
isolation
…and now various forms of international
re-integration
By 2004 a re-configured region with countries
integrating with each other and into the global
marketplace, but at differing speeds and
patterns
• Trade, FDI flows, and international integration
fairly extensive for CEE and Baltics
• Integration of CIS countries highly constrained,
especially for the land-locked Central Asia and the
Caucasus
• SEE formally liberalized trade regimes, yet still
emerging from conflict
Heterogeneity in the nature and extent
of integration
Growth rates of merchandise trade flows vary
significantly: EU8 and SEE most rapid export growth
Total Exports of ECA Country Groups
Total Imports of ECA Country Groups
(Share in GDP)
(Share in GDP)
0.25
0.25
0.20
0.20
0.15
0.15
0.10
0.10
0.05
0.05
0.00
0.00
1994
1996
CIS
SEE
2000
EU 8
2003
1994
All ECA
Source: IMF DOT Statistics, data for CIS 1990-1993 from Michalopoulos, Tarr (1994)
1996
CIS
SEE
2000
EU 8
2003
All ECA
Heterogeneity in the nature and extent
of integration (cont’d)
Trade in services also dramatically changed
across sub-regions
Share in Total World Importrs of Services (%)
Share in Total World Export of Services (%)
7.00%
6.00%
6.00%
5.00%
5.00%
CIS
4.00%
SEE-8
3.00%
EU-8
2.00%
All ECA
4.00%
3.00%
2.00%
1.00%
1.00%
0.00%
0.00%
93 9 94 9 95 9 96 9 97 9 98 9 99 0 00 0 01 0 02 0 03
9
1
1
1
1
1
1
1
2
2
2
2
Source: IMF- Balance of Payments Statistics
93 9 94 9 95 9 96 9 97 9 98 9 99 0 00 0 01 0 02 0 03
9
1
1
1
1
1
1
1
2
2
2
2
CIS
SEE-8
EU-8
All ECA
Heterogeneity in the nature and extent
of integration (cont’d)
Commodity composition has changed greatly for
EU8/SEE; in CIS a significant role of energy
and natural resources trade still dominant
Table: Structure of ECA’s Exports by Major Product Category, 1996 and 2003
Total
Export Share (%)
Exports
Food &
Agric Raw
Ores &
($million)
Feeds
Materials
Metals
All
Machinery
Motor Veh
Misc.
Papers
Rubber
Clothing
excl auto
& Parts
Manuf.
All ECA
1996
247493
17.1
4.9
6.3
13.2
56.5
8.7
2.4
2.3
13.0
11.2
3.2
6.2
2003
461054
12.3
4.4
7.4
15.7
56.6
5.7
2.5
2.5
11.7
13.9
4.4
6.2
1996
83456.1
11.5
5.7
3.2
5.5
71.5
9.5
5.2
2.1
12.1
17.0
6.6
9.3
2003
195259.4
7.0
5.9
2.7
5.1
78.9
7.0
5.4
2.1
8.0
26.5
10.7
10.4
1996
118387.4
12.7
5.7
9.1
29.6
40.4
8.3
0.8
0.9
7.6
8.1
2.1
3.0
2003
181942.4
9.6
4.7
13.0
34.4
30.1
3.7
0.6
0.5
6.0
6.3
1.4
1.8
SEE8
Chemical
Textiles &
Year
CIS
Manuf
Leather &
Exporter
CEEC8
Fuels
Wood &
1996
10115
25.1
4.2
7.4
4.2
58.4
8.5
1.5
4.8
16.4
9.6
1.2
7.0
2003
22069
18.6
3.5
5.8
4.6
66.1
5.0
2.0
6.2
22.0
11.5
1.2
7.6
Source: Computations based on UN COMTRADE Statistics
Heterogeneity in the nature and extent
of integration (cont’d)
Factor composition varies greatly: EU8 exports
most capital-intensive; SEE has more
unskilled labor-intensive exports than CIS.
Average Group Factor Intensities Merchandise Exports
Average Group Factor Intensities Merchandise Imports
All ECA (03)
All ECA (03)
All ECA (96)
All ECA (96)
EU 8 (03)
EU 8 (03)
EU 8 (96)
EU 8 (96)
SEE 8 (03)
SEE 8 (03)
SEE 8 (96)
SEE 8 (96)
CIS (03)
CIS (03)
CIS (96)
CIS (96)
0%
Natural Resources
20%
40%
Unskilled Labor
60%
Capital Intensive
80%
100%
Skilled Labor
Source: Computations based on UN COMTRADE Statistics
0%
Natural Resources
20%
40%
Unskilled Labor
60%
Capital Intensive
80%
100%
Skilled Labor
ECA’s "new" integration differs
significantly from the “old” one
On a global basis, ECA exports are
mainly Euro-centric
But intra-ECA trade has become
bificurated
 CIS
trade flows within the region have
become more (sub-) regionalized and
concentrated;
 Trade flows for the EU8 and SEE
countries have become more diffused
The emergence of two trade poles:
direction of trade flows
Share of Total World Merchandise Exports of ECA Groups
Share of Intra ECA Merchandise Exports
EU 8 (93)
EU 8 (93)
EU 8 (03)
EU 8 (03)
SEE 8 (93)
SEE 8 (93)
SEE 8 (03)
SEE 8 (03)
CIS (93)
CIS (93)
CIS (03)
CIS (03)
0%
ECA
20%
EU 15
LAC
40%
MENA
Africa
60%
East Asia
South Asia
80%
NAFTA
Source: IMF DOT Statistics Source: IMF DOT Statistics
100%
ROW
0%
10%
20%
30%
40%
50%
60%
CIS SEE 8 EU 8
70%
80%
90% 100%
The emergence of two trade poles:
yet still heterogeneity
However, the two poles are uneven in
economic size, with the magnitude of the
trade and investment flows and market size of
the Euro-centric one outweighing those of the
Russia-centered one.
Moreover, this masks the more complex intraregional differences:


not all of the countries fall exactly into these
two groups, and
even within each of the two poles, there are
significant differences among the countries
How open are ECA’s economies?
ECA -- a ‘normal’ trading region: GDP share of trade comparable
to other regions with similar development & size
Trade Openness = F (GDP, Populations, Country Identity)
Table: ECA’s Merchandise Trade Openness in Comparison with Other Regions: 1994-2003
Dependent Variable
Ratio of Exports and Imports to GDP in PPP $US
Explanatory Variable
ln population
ln GDP per capita (PPP)
ECA
ECA Transition
ECA Non-Transition
EU8
SEE
CIS
East Asia
Latin America
OECD
Sub Saharan Africa
Intercept
R2
Number of countries
Base Model
-7.2 (1.0)***
18.0 (2.3)***
Model 1
-8.91 (1.4)***
19.47 (3.9)***
-4.65 (3.6)
Model 2
-8.94 (4.2)***
20.13 (4.2)***
Model 3
-9.04 (1.47)***
20.30 (4.1)***
-3.76 (4.2)
-1.95 (6.7)
-46.8 (2.24)***
0.52
125
23.54 (8.5)***
-8.20 (3.6)**
10.88 (9.6)
23.80 (8.5)***
-8.18 (3.7)**
9.82 (9.8)
-5.87 (6.2)
-6.24 (4.7)
5.25 (6.1)
25.71 (9.9)**
-6.44 (4.8)
10.89 (9.4)
-46.99 (35.6)
0.63
81
-52.50 (37.3)
0.63
81
-54.58 (37.1)
0.63
81
Note: Standard errors in parentheses. Significance level: *** 1 percent; ** 5 percent; * 10 percent
IV (2SLS) regressions with robust standard errors
Source: Author’s calculations
How open are ECA’s economies? (cont’d)
Table. ECA Actual vs. Theoretical Trade Openness
Merchandise Exports plus Imports to GDP in PPP US$
2003 realization ratios
Actual Openness (%)
(actual/predicted by the model)
1995
2003
Averages:
ECA
ECA Transition
CIS
SEE
EU8
35.6
34.1
28.1
27.4
48.2
39.3
38.4
23.9
31.2
65.5
Note: Coefficients from model with dummy variables used (i.e., Model 1 in previous Table a=2002 data;
b=1999 data; c=1996 data; d=2001 data; e=data unavailable; f=Moldova, Tajikistan
and Uzbekistan are outliers due to large measurement errors
1.03
1.02
1.02
0.76
1.49
How did trade policies become
more liberal?
Most of the liberalization has been done by the
countries themselves through:
1) Lowering tariffs
90.00
80.00
70.00
Openness
60.00
Openness = 43.555 - 1.7839Tariffs
R2 = 0.1142
50.00
40.00
30.00
20.00
10.00
0.00
0
2
4
6
8
Tariffs
10
12
14
How did trade policies become
more liberal? (cont’d)
2) Global integration
•
•
reorientation of trade and investment to the rest of the
world, especially towards the EU
increasingly active participation in the multilateral trading
system
•
many are members of the WTO: 19 are WTO members (and 9
are WTO observers)
3) Intra-regional integration and emergence of
RTAs: CEFTA, BFTA, SEE network of BTAs, CIS FTA
(CIS-wide BTAs), Eurasia Economic Community
(‘Evrazes’-CIS-5), Central Asian Cooperation
Organization
Variable impacts of RTAs on trade
performance and deeper integration
CEFTA and BFTA: catalysts for increased intra-regional
trade; facilitated participating countries’ commitments
to the EU acquis
For CIS and SEE, RTAs have had more limited impacts

implementation lags commitments; politically-based
distortions; complex rules of origin and weak customs
Fostered deeper integration? Most RTAs have not
liberalized trade in services—transit barriers in
Central Asia; migration; slow structural reforms
How has market-based trade in ECA
contributed to growth?
Improved productivity through:

deeper import competition and enhanced
business efficiency

greater access to higher quality imports
with embodied technology

more extensive specialization

economies of scale that come with
integration
Trade’s economy-wide effects on domestic
structural and institutional reform:
A “two-way street”
90.00
80.00
70.00
60.00
50.00
Openness
Countries that have
integrated the most have
made more progress
implementing market
institutions and domestic
policy reforms, which in
turn have led to more
vibrant businesses and
greater job creation
40.00
30.00
20.00
10.00
0.00
0.00
0.50
1.00
1.50
2.00
Progress in Transision
2.50
3.00
3.50
4.00
Trade’s economy-wide effects on domestic
structural and institutional reform:
A “two-way street” (cont’d)
Establishing trade links, especially under
international commitments and agreements,
helps ‘lock in’ hard-won domestic market
reforms
Trade policy reform is necessary but not
sufficient …
… complementary market-oriented ‘behindthe-border’ policies are just as important
‘Behind the border’ policies and market
institutions are …
… important in harnessing the ways in which
trade can leverage growth and reduce
poverty
Key ‘behind-the-border’ reforms are:





creating a more competitive domestic business
climate
improving trade and transport facilitation systems
liberalizing domestic services sectors and
associated regulatory reform
attracting FDI to link into global production
networks
creating flexibility in labor and capital markets to
reallocate resources
An example:
Greater FDI is linked to greater trade
90.00
80.00
70.00
60.00
Openness = 19.922+ 0.0148FDI
R 2 = 0.5491
Openness
50.00
40.00
30.00
20.00
10.00
0.00
0.00
1000.00
2000.00
FDI
3000.00
Priority Policy Recommendations
I. Trade policy reforms
Reduction of tariffs and NTBs over medium term
Simplification of tariff regimes
Design of trade policy reforms to engender
incentives for greater product diversification
EU CAP Agriculture
Non-Market Anti-Dumping
Pursuit of the WTO accession
Rationalization of bilateral FTAs
Extension of regional co-operation beyond
preferences in merchandise trade (incl. trade
facilitation and liberalization of services)
Priority Policy Recommendations (cont’d)
II. Behind the border policies
Greater inter-enterprise competition in the
domestic market
Trade facilitation and logistics
Customs reform
TA and investment in capacity building
Liberalization of the services sectors
Improve FDI policy regime
Complementary polices to reduce poverty
Principal Messages …
ECA is today more integrated into the
global economy than at the start of the
transition, and without open trade, the
transition would not have happened
Principal Messages …
Two trading blocs are emerging in ECA—one
‘Euro-centric’ (EU8 and SEE), the other
‘Russia-centric’ (CIS)—whether in terms of
direction of trade flows, commodity and factor
composition of trade, intra-industry trade and
participation in global production sharing
networks through FDI
But there is significant intra-bloc heterogeneity
and a sizeable inter-bloc difference in scale
Principal Messages …
ECA countries that have pursued both
trade policy and related behind-theborder institutional reforms have been
able to leverage effectively greater
integration into increased growth and
reduction of poverty
For many ECA countries, a large
unfinished reform agenda remains
Principal Messages …
Some problems require action by
developed countries—especially market
access in agriculture and anti-dumping
But much of the needed reforms are in
the ECA countries’ hands, including
pursuit of WTO accession (where the
prospect of EU accession is unrealistic)
and rationalization of the many RTAs