Foreign Trade in the Transition · the International Environment and Domestic Policy

This paper started as one of a series of overview articles initiated by the Transition Economics Division of the World Bank's Policy Research Department to review and assess the growing body of evidence on the determinants of a successful transition. Its objective, however, evolved beyond a review of the literature into a more substantial research exercise designed to test the proposition and document more systematically the evidence behind it. The paper focuses almost exclusively on the economies that entered transition because of the sudden collapse of communism: the European and Central Asian members of the former Council for Mutual Economic Assistance (CMEA). It considers three broad sets of determinants of the speed with which these transitional economies have been able to normalize their trading performance and boost their exports: their initial, pre-transition conditions, the changes in their access to western markets, and their policy stances. Finally, the study offers strong empirical evidence that the pace of implementing a liberal economic reform, including government commitment to macroeconomic stability and openness to international trade, is the single most important variable explaining differences in the pace of trade reorientation.