Central European Countries and The Smooth Adjustment Hypothesis

Stanislav  Černoša

Stanislav Černoša

Keywords: Intra-industry trade, Czech Republic, Poland, Slovenia, European Union

Abstract

This paper analyses bilateral trade between the Czech Republic, Poland, and Slovenia as Central European Countries (CEC-3) and the 15 European member states (EU-15). The study briefly presents a modified theory of customs unions; discusses results of the measurement of vertical intra-industry trade between the Czech Republic, Poland and Slovenia in trade with the EU-15; and identifies other important factors that define vertical intra-industry trade between the CEC-3 and EU-15 members. The aim of this paper is to test the smooth adjustment hypothesis (SAH), which predicts that a high level of total intra-industry trade is positively related to low adjustment costs.
The traditional theory of customs unions supposes that members of customs unions or other regional trading arrangements have different relative factor endowments, which— under free trade conditions—results in inter-industry specialisation. Consequently costs of adjustments are smaller in the case of more developed member countries and greater in the case of less developed member countries. The modified theory of customs unions predicts that reduced trade barriers within the union will lead countries to intra- industry specialisation, which will have important implications for the short-run costs of adjustment—namely, the costs of adjustment will be smaller for all members of the customs union irrespective of their stage of development. Although the modified version of customs unions theory assumes that the SAH is valid, this paper confirms the view of many other authors that this hypothesis is doubtful.

Downloads

Download data is not yet available.

Author Biography

Stanislav Černoša

Publishing house Aristej , Slovenia
E-mail: cernosa@aristej.si

In 2003, Stanislav Černoša graduated from the University of Ljubljana, Faculty of Economics with a doctorate in international economics. In 2009, he was appointed assistant professor in the field of international trade with goods and services at the University of Maribor, Faculty of Economics and Business. His research focuses on economics, econometrics, economic theory, economic systems, economic policy (S 180), and international trade (S 186).

References

Abd-el-Rahman, K. (1991). Firms’ competitive and na- tional comparative advantages as joint determinants of trade composition. Weltwirtschaftliches Archiv, 127(1), 83–97.

Balassa, B. (1966). Tariff reduction and trade in manufacturers among the industrial countries. American Economic Review, 56(3), 466–473.

Brülhart, M. (1994). Marginal intra-industry trade: Meas- urement and relevance for patterns of industrial adjustment. Weltwirtschaftlisches Archiv, 130(3), 600–613.

Cernosa S., & Moczulski, M. (2011). Intra-industry trade inside European Union. The case of Poland and Slov- enia. In J. Kundera (Ed.), Globalizacja, europejska integracja a kryzys gospodarczy (pp. 613–638). Wrocław: Universytet, Wydział Prawa, Administracji i Ekonomii.

Greenaway D., Hine, R., & Milner, C. (1994). Country- specific factors and the pattern of horizontal and verti- cal intra-industry trade in the UK. Weltwirtschaftliches Archiv, 130(1), 77–100.

Greenaway D., Hine, R., & Milner, C. (1995). Vertical and horizontal intra-industry trade: A cross-industry analysis for the UK. Economic Journal, 105(431), 1505–1519.

Greenaway D., & Milner, C. (1986). Economics of intra-industry trade. Oxford: Basil Blackwell.

Grubel H., & Lloyd, J. P. (1975). Intra-industry trade: The theory and measurement of international trade in differentiated products. London: The Macmillan Press.

Verdoorn, P. J. (1960). The intra-block trade of Benelux. In E. A. G. Robinson (Ed.), Economic consequences of the size of nations (pp. 291–329). London: Macmillan.

Viner, J. (1950). The customs union issue. New York: The Carnegie for International Peace.