Growth in Exports to the EU

Data and Source

Prior to 1991, trade outside the FSU was heavily centralized and exchanged controls maintained an over-valued ruble. Trade among members of the FSU was conducted at administratively set prices. Centralized trade greatly reduced individual enterprises' opportunities for product and marketing innovation, while exchange controls created a black market for foreign currencies. Relative to a market-based outcome, trade was overly concentrated within the FSU and was not efficient in terms of world market values.

The transition to a more efficient structure of trade has created difficult conditions for enterprises. Mechanisms for arranging trade within the FSU changed with the establishment of separate governments, new ministries, and less centralized control. Prices for goods traded among members of the FSU, particularly prices for energy sources, have changed dramatically. Thus enterprises now confront a new structure of input and output prices. On the other hand, enterprises gained much better opportunities to make use of world markets. Evidence from economies in Eastern and Central Europe and the FSU indicates that trade between these economies and the European Union is growing, as would be expected in a transition to a more efficient trading structure.

Governments can choose or reject policy that fosters integration into world markets. Enterprise managers who prefer protection from world markets have increasing less reason to believe that such policy will be sustained. World experience suggests that such policy is not a propitious development strategy. Unless consideration of alternatives is sternly and mindlessly repressed, a policy shift to an open-economy policy is a significant, on-going risk. Moreover, protectionist policies are difficult to administer successfully. Trade barriers can create large incentives for illegal activity and for lobbying for special privileges by powerful domestic interests. In the absence of an iron curtain and a one-party state, enterprises that do not measure up to world competition are always at risk.

Enterprise Restructuring in the FSU