integration: concluding remarks
We start this concluding section with a summary of some of the principal results which emerge from the analysis in this paper.
• There is evidence of dramatic processes of de-agrarization, de- industrialization and tertiarization which have taken place in the CEECs since 1989; the re-agrarization observed in some of the economies (Bulgaria, Romania) is judged to be a transitory phenomenon, reflecting the dramatic jobs crisis resulting from job losses in manufacturing and the slow development of tertiary job opportunities in these economies.
• There were dramatic (and possibly irreversible) declines in overall employment levels and employment rates, as well as changes in gender-specific participation rates.
• Industrial restructuring since 1989 clearly proceeded over a number of phases with differences revealed across the CEE economies: the most successful of the candidate countries experienced, like the others, a dramatic transformation crisis in the first phase 1989-1992, followed by the beginnings of a sustained growth period (Poland). Others experienced secondary transformation crises (Hungary in the mid-1990s, Czech and Slovak Republics in the late 1990s), and they seem to emerge now onto a sustained growth path. Other CEECs are still likely to undergo further transformation crises.
• The pattern of industrial restructuring shows a lot of diversity across CEECs: The degree to which productivity increases are achieved through output growth or employment loss (or both), the degree to which output growth is strongly driven by exports or domestic demand, the degree to which wage growth lags behind or exceeds productivity growth and thus affects cost competitiveness, etc., are all examples of such diversity. We also pointed to an interesting pattern of relative catching-up across industrial branches, which is not only typical for the more successful CEECs, but reflects the available experience of a wide range of catching-up economies: Productivity catching-up is high in the medium- to higher-tech industries (such as engineering), while wage catching-up is more evenly spread across branches. As a result, the successfully catching-up economies are gaining competitive advantages in the medium- to higher-tech industries and losing the competitive advantages in low wage, labour-intensive branches.
• The analysis of trade flows with the EU showed again a lot of differentiation across the CEECs: As a starting point in 1989, the CEECs showed a general trade profile with the EU which would be typical for a less developed trading partner. Exports from the CEECs were mostly in the areas of labour-intensive and energy- intensive (due to the legacy of cheap oil supplies from the Soviet Union) products; there were substantial deficits in R&D-, skill- and – to a lesser extent – in capital-intensive branches. Over time, however, the more advanced of the CEECs managed to change their trade specialization profile relative to the EU: large specialization disadvantages in R&D-, skill- and capital-intensive areas declined significantly, while specialization in labour-intensive branches got substantially reduced. The star performer in this respect is Hungary,
but also in the Czech Republic and Slovenia this change in trade specialisation can be observed; the CEE-2 (Bulgaria and Romania) on the other hand, seem to be stuck in the specialisation profile typical for less developed economies; Poland occupies an in- between position.
• In parallel with the change in the pattern of inter-industry trade specialization, there were also substantial changes in the positions of CEE producers in the quality of products they produce and export (i.e. in their position in "vertically differentiated" intra-industry trade). The CEE economies started off in 1989/90 at the very low quality end of the product spectrum. Econometric estimates show, however, a very fast catching-up process in export unit values for the CEE-5 over the period 1989-96. Again, the CEE-2 (and Russia) lag far behind in this respect.
• Finally, as in many other studies, the important role of FDI was pointed out in developing a segment of economic activity which has an above-average investment propensity, productivity growth and export intensity. We also showed that FDI did not necessarily tend towards low wage, labour-intensive branches in countries belonging to the CEE-5 group.
We now conclude with some remarks on the impact of EU accession of some of the candidate countries on the further processes of structural transformation in CEECs and on patterns of East-West European integration.
East-West European economic integration has proceeded at a very rapid rate since the beginning of the transition in 1989. It has led to a dramatic process of trade integration and substantial FDI flows which (together with other forms of cross-border corporate activities, such as outward processing trade, OPT) have paved the way to important production linkages between sites in Central and Eastern Europe and those in Western Europe. At least at the start of the transition, there were also substantial population and labour flows between CEE and the EU and, with EU accession, these are expected to increase again. Hence we can speak of three forms of integration:
• through product markets via increased trade flows,
• through capital markets via FDI flows and other forms of cross- border firm activities,
• directly through labour markets via the international/inter-regional mobility of labour.
There are interesting issues involved in the extent to which these three different channels through which East-West European integration proceeds complement or substitute for one another. There is a large theoretical literature which analyses under which circumstances one or the other is the case (see e.g. Markusen, 1983). This issue is important to be able to evaluate to which extent full accession to the EU – which implies full liberalization of relationships on all these three channels – will affect the structures of East-West European integration as against the current situation in which integration proceeds almost solely through the first two channels which are mostly, but not fully, liberalized, while the third channel is very highly restricted. Even concerning the first two channels, full membership of the EU implies a further regime change as it implies: full membership of the Single Market arrangements, a dismantling of border controls, complete liberalization of access by member firms to each others’ markets, the adoption of EU competition policy rules, of the Common External Trade Policy, etc. This amounts to a much higher degree of liberalization of economic relationships between the CEECs and the EU and will have a further impact upon the patterns of integration and specialization in Europe.
The increased integration between the acceding countries and the EU will also affect the countries which are lagging in the accession process. There is a discussion amongst economists as to whether the sequential process by which EU accession will most likely proceed will have negative or positive effects on the "laggards", the "left-outs" and the "stay-outs" (on this issue, see the contributions in Landesmann/Rosati, 2000). The issue here is whether the ease of access to EU markets, the increased attractiveness for FDI, the speeding up of convergence in macro- and microeconomic policies and in the legislative process of the "first-rounders" will increase further the gaps between them and the other transition countries or whether the movement of the EU borders to the east will yield the benefits of contiguity and of spillovers also to those countries which do not have the prospects to join the EU in the short- or even medium-term.
The enormous diversity ("West-East-Gefälle") in the development patterns of the different CEECs emerged clearly in almost every section of the paper, with very dynamic patterns of catching-up being observed for some of the CEE countries bordering with the EU and sluggishness in structural (including behavioural) transformation of the countries
further east. The fate of this differentiation process is closely linked to the issue discussed above on whether EU accession of a first group of candidate countries will further increase the gap to the other CEE economies and, furthermore, whether patterns of structural change and specialization get cemented ("hysteretic effects") or will gradually follow the developmental patterns observed for the more advanced transition economies. Economists can at this stage not forecast which of these two scenarios is likely to emerge.
It is clear that structural change (just as the transition process itself) has quantitative as well as qualitative aspects to it. The quantitative aspects (such as evidenced by the analysis of "convergence in structures" or of purely quantitative measures of productivity level catching-up) do convey the outward symptoms of differences in developmental levels, of catching-up or lack of catching-up and convergence in structural or behavioural terms. However, there is a qualitative side to the transformation and the catching-up processes which would require a deeper analysis of the interaction between institutional change and behavioural change, of the transformation of organizational structures at the micro-economic level, of the complicated interface between political, economic and cultural change which is at the root of why transformation processes take one course or another, of why development takes place or is stalling, why the conditions for EU accession can be fulfilled within a particular time horizon in some CEECs and not in others. It is clear that our understanding of the qualitative side of transformation and developmental processes is far less advanced than of the quantitative side and the analysis provided in this paper is testimony to this. Nonetheless, the description and systematic assessment of "symptoms" is a necessary component of a proper diagnosis.
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