FOREIGN DIRECT INVESTMENTS IN POLAND
AND THE QUALITY CATCH-UP OF POLISH FOREIGN TRADE

 

Jørgen Ulff-Møller Nielsen
Associate professor
Department of International Business
The Aarhus School of Business
Fuglesangs Allé 4
DK-8210 Aarhus V
Denmark

Tel +45 89 48 66 88
Direct +45 89 48 63 43
Fax +45 89 48 61 25

E-mail JUM@HHA.DK

 

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FOREIGN DIRECT INVESTMENTS IN POLAND
AND THE QUALITY CATCH-UP
OF POLISH FOREIGN TRADE

 

 

 

Abstract :

The concept of unit value is shown to be a useful tool in analysing changes in the export structure of Poland, which until 1996 shows no signs of a significant quality catching-up in its export structure relative to some dynamic Asian economies and the EU-countries. Poland seems instead to specialize in price sensitive sectors, a process, which to some extent, is supported by inward FDI.

 

FOREIGN DIRECT INVESTMENTS IN POLAND
AND THE QUALITY CATCH-UP
OF POLISH FOREIGN TRADE

 

INTRODUCTION

The external economic relations of the Central and East European countries (CEECs) changed dramatically by the political events of 1989. Before this date, their trade policies towards the rest of the world were of a highly protectionist nature. Inward foreign direct investment (FDI) were practically forbidden and, at best, limited to joint ventures, with foreigners limited to hold a minority share in the enterprises of the CEEC-countries. After the fall of the Berlin wall, however, the climate has changed. The countries have tried to follow a strategy to participate both in the multilateral system (WTO, IMF, etc.) and the more regional EU membership, with cooperative agreements with the EU and the other CEEC-countries in the interim period.

The orientations of the trade policies of the CEEC-countries towards the EU have resulted in a marked change in the geographical distribution of each CEEC country’s trade. From the period 1989 to 1996-97 for example, Polands exports to the EU increased from 30 to 65 percent [IMF1995,1998]. From almost nil inflow of FDI, the CEEC-countries experienced increased significant investment in the years after 1989. From 1989 to 1997, Hungary, in absolute terms attracted the largest chunk above that of both Poland and the Czech Republic [EBRD 1997].

With the opening of their economies for goods, capital and technology, it is expected that some quality or technology "catching-up" will occur. Without this process it is also difficult to invision that the CEEC-countries will be able to fully integrate with the EU-countries. A catching-up process, in relation to international trade, can be defined as a process where the producers in a less developed country are "climbing up" in vertical differentiated markets and/or "climbing closer" the technological frontier. The catching up process will be realized by narrowing the gap between the quality of export and import products. This is further accomplished by narrowing the gap between the quality of export products relative to competitors in third country markets or through a relative reduction in export prices in price-sensitive markets. The final aim for the CEEC-countries of the catching up in foreign trade is to obtain the standard of living relative to the EU. Seen from a European Union perspective, it is neccessary to ensure cohesion when the CEEC-countries become EU members.

How far has the process of quality integrations or catching-up progressed and what has the role of foreign direct investment been in that process? These are the main questions, which we will try to answer in this paper. Poland will be used as a case study to give some validity of the answers to these questions. The answers, however, will be tentative for a number of reasons. First of all because quality or technology gaps cannot be measured in any direct way. Second, the time elapsing since 1989, when the market liberalisation process with significantly inward direct investment began, has been short. Thirdly, it is well-known that data for FDI is crude and especially of the detailed industry level.

In section 2 we give a short description of theories relevant for understanding the relation between quality, trade and FDI. In section 3 we discuss how to measure the quality and price competitiveness of the CEEC-countries relative to other countries. In section 4 we present the price-quality profile of Poland relative to three control groups; some Dynamic Asian Economies (DAE) and both the rich (EU10) and relative poorer (EU4) EU-countries. Section 5 presents the relation between inward FDI in Poland and its quality level in export markets. Section 6 contains some concluding remarks. The Appendix gives a more in depth presentation of the data implemented for the interested reader.

QUALITY AND TECHNOLOGY GAPS AND FDI

Until new trade theory entered the scene around the early 1980's, the factor endowment theory dominated international trade theory. Technological and product quality differences did not play any significant role in explaining trade, with the exception of maybe Linder [1961] and Vernon [1966]. Around 1979, things changed. Falvey [1979], building on a factor endowment approach, introduced trade in products of different qualities and Krugman [1979], building on Vernon, formalised the product cycle theory. With the inspiration of the new endogenous growth models by Romer [1986], a new class of models followed. Simply put Romer stated that if technological change is driven by conscious R&D behaviour on expectations, these subsequent innovations will at least temporarily give a monopoly profit. The contributions of Grossman and Helpman [1991] are especially important. In their model they introduce the concept of vertical innovation, the result of a development of a variety of different qualities from the existing ones. The rich countries continuously upgrade their qualities through investing in R&D while poorer countries, through imitation, threaten the competitive position of the rich because of their lower wages.

The firms in the rich countries, e.g. Western Europe, are primarily supposed to create their competitive advantages through continuously upgrading their technological capabilities. By selling their high quality products at high prices, the products "quality" pays for R&D expenses. On the other hand, firms in the relative poorer countries, e.g. the DAE-countries and CEEC-countries, are to a great extent obliged to specialise in the lower end of the quality ladder, but create their competitive advantage through utilizing "free" technology combined with low wages. Their competitiveness is based on prices and cost. The distance along the quality spectrum between the DAE, the CEEC and the EU-countries will determine to what extent they are competitors.

However, the relative positions concerning technology and quality is not a given forever. There is a constant race for improvements in relative positions and therefore, within a given industry, the dominance of either quality or price competitiveness. A country’s effort to upgrade through domestic R&D and increase the ability to appropriate foreign technology through investment in human capital combined with the pace of technology transfer through direct investment are decisive factors to "catching-up".

Multinational companies may have strategic incentives not to transfer the state-of-art technology either to safeguard themselves against future competition or the limited absorptive capacity of such countries can act as a constraint. For investment in the CEEC-countries, both aspects can play a role determined by the size of the technology gab, which over time can be changed by the rate of innovation in the Western countries and the rate of imitation in the CEEC countries [Glass& Saggi 1998]. If the rate of imitation is high in the CEEC-countries - itself a function of the FDI activities - the technology gap will shrink, and more advanced technology can be exported because the absorptive capacity is increasing. Strategic aspects, however, can widen the gab. If R&D activities in the Western countries are happening at great speed, the absorptive capacity of the CEEC-countries speaks in favour of exporting more primitive technologies.

The general market liberalization process, as well as the FDI, promotes the ability of firms in the receiving country to imitate and, in this way technology, and quality gaps shrink. At the same time, this means that the ability to host FDI and transfer superior technology is increased.

There is, therefore, reason to expect that both the DAE-countries (rapid industrialization) and the CEEC-countries ( market liberalisation) will be quality upgraded resulting in more intense competition both between them and in relation to the EU-countries

MEASURING THE QUALITY GAPS

There has been a long tradition in the Eastern European countries to use unit values or kilogram-prices as a tool for analysing the "effectiveness" in manufacturing industries. Relative low unit values were explained by lower technological characteristics of the products; by an incentive system, which rewarded plan fulfilment in terms of physical indices as weight and with little importance to quality control; by poor marketing, servicing, unattractive design and consumer prejudice, (see Amann and Slama [1976], who also discuss some of the shortcomings in using unit values).

In the 1990's, there has been a revival in using unit values in investigation of the quality dimension in international trade. Two main types of investigations have been carried out. One, starting with Abd-el-Rahman [1991], has used unit values to distinguish between horizontal and vertical intra-industry trade. The latter consists of an exchange of similar goods of different quality and the former comprises an exchange of similar goods that are differentiated by characteristic rather than quality. Abd-el Rahman [1991], Greenaway et al. [1995] and others have used unit values for export relative to import with a dispersion of 15% as an (arbitrary) limit for the separation in goods of similar and different qualities. The underlying assumption is that relative prices tend to reflect differences in qualities, [Stiglitz, 1987]. A recent study by Aturupane et al. [1999] shows that vertical intra-industry trade accounts for 80 to 90 percent of total intra-industry trade between the CEEC and the EU, with the CEEC-countries primarily responsible for the lower quality segments inherited from the central planning period. The problem with this type of analysis is that it does not separate the cases where unit values primarily represent some cost indicators and where they are quality indicators.

A somewhat different type of investigation initiated by Aiginger [1997] uses relative unit-values and relative traded quantities to distinguish between product markets where unit values signal costs and where they reflect quality. A country is cost or price competitive in a market if it has lower unit values (costs) than its competitors and at the same time, has bigger export quantities. This type of market is price elastic and the products are rather homogeneous. On the other hand, a country is competitive in quality if, at the same time, it has higher unit values and higher quantities than its competitors, which is due to different types of non-price components of competitiveness, such as image, quality, etc., typically found in heterogeneous and price inelastic markets. Aiginger’s competitiveness profiles for a country relative to another country (or groups of countries) are shown in table 1, where the competitiveness profile of Poland (P) relative to the EU-countries (EU) is taken as the example with UV and T indicating unit value and tons respectively.

 

 

In the following empirical investigation of the Polish quality catch-up in foreign trade we will use elements of both types of research. From the intra-industry tradition we expand Aigingers price-quality profiles with division of unit value ratios (and quantity ratios) into three intervals, with one over and another under an interval where unit value ratios and product qualities are supposed to be more or less equal (+/- 15% around equality of unit values). We look at the quality gap of Poland relative to some Dynamic Asian Economies (DAE), and relative to poorer and richer European union countries, EU(4) and EU(10) respectively (see the Appendix for the definition of the countries). The DAE and EU(4) countries are chosen to represent countries most likely to be comparable to the CEEC-countries concerning level of development.

We use Denmark as the reference country, that is, we compare the quality levels and the price-quality competitiveness profiles of Poland relatively to DAE, EU(4) and EU(10) in their exports to Denmark. Denmark, as a test country, has both advantages and disadvantages. The advantage is, that by using the Danish (import) trade statistics, consistency is ensured concerning trade classifications etc. At the same time, price discrimination between markets is eliminated and by using only export data we escape the cif versus fob problems in many other investigations using both import and export data. The disadvantage is that the Danish economy is relative small and, therefore, the size of trade will be relatively modest and may be also the number of product groups. In the Appendix further details are given.

POLANDS PRICE-QUALITY PROFILES

An indication of the quality position of Poland relative to the three control groups can be found by calculating a simple unweighted quality index (QUC) earlier used by Torstensson [1991].

QUC = [G i(UViC/UViP]/n (1)

with C the control groups (DAE, EU(4) or EU(10)), P Poland, i the product group, and n the number of product groups, which theoretically can be up to 10.000 when using the combined trade classification of the EU, CN, at 8 digits level. If QUC is greater than one, this indicates that Polish export is of lower quality than the export of the control group. Table 2 gives the results.

 

 

The first conclusion from table 2 is that the number of products where Poland is in competition with the countries in the control groups are significantly increasing from 1988 to 1996, that is, the export structure of Poland is becoming more differentiated. The next conclusion is that the unit value levels interpreted as quality levels are significantly higher in the control groups than in Poland. In 1988, just before the significant change, Poland was lagging 57-119 percent behind the control groups, less relative to the DAE countries. The third conclusion is, that Poland only shows a statistical significant catch-up relative to DAE-countries, but only for the period 1988 to 1992. Relative to EU(4) and EU(10) there is no significant catch-up. There is also a weak sign (but not statistical significant) relative to all control countries of an U-movement with catching-up in the first period (1988-92) and then lagging behind in the next.

One could suspect that exchange rate movements, to some extent, will influence the calculated QUC-indices. After a small real depreciation from 1989 to 1990, the zloty showed a significant real appreciation from 1990 to 1991 of 100 percent with gradually real depreciations to 1996, but compared to 1989, the zloty had a real appreciation in 1995 of 80 percent, [Hauswirth and Mooslechner 1998]. Based isolated on these facts, we would expect the prices of Polish export products to increase from 1988 to 1992 and decrease from 1992 to 1996 relative to the control countries, and therefore the QUC-indices to follow an U-curve. But we do not expect the influence of exchange rate movements to be significant because, as shown below, Poland primarily competes within price elastic sectors.

Besides the price or cost effect from the exchange rate on the QUC-index, the significant real appreciation could also influence the number of products, which survive the competition in the export markets because products with less price-quality competition will die and therefore strengthen the U-shape.

It should be mentioned that changes in the size of the QUC-indicators over time and between control countries should be interpreted with care because they partly include different products. In table 3 we have to some extent corrected for this problem by calculating the QUC-values on the condition that the product groups are common in the indicated years.

We se that the results of table 2, to some extent, are confirmed in the relation between Poland and DAE-countries. Both from 1988 to1992, from 1988 to 1996, but not from1992 to 1996, Poland is catching-up. Relative to EU(4) there are no signs of catching-up, but for EU(10), where the crude quality indicators told us no significant changes, we now see some signs of catching up for Poland for 1988 to 1992 and 1988 to 1996, but not for 1992 to 1996. It is also seen that the level of the QUC indicators is more favourable for Poland in table 3 than in table 2, indicating, that surviving products have more favourable quality levels than newcomers and leavers.

 

 

In table 4 we take a deeper look in the dynamics of death and birth of products where Poland and the groups of control countries are in competition.


We see a rather consistent pattern for Poland relative to control groups with very high birth rates in the years following the fall of the wall with decreasing birth rates and increasing death rates in the later period, that is converging death and birth rates. This picture tells us that Poland has moved into an era with dynamic changes in its export competition pattern. A further look in the dynamics of the Polish exports is taken in table 5 where we regress the unit value ratios for the two periods, so the same product groups are included in the start and end period.

 

 

Table 5 indicates, that there is a tendency to stickiness in quality product specialization over time, that is, when e.g. DAE-countries have a quality premium in 1988 in a given product group and over a given (break even) level, this premium will be increased ($ <1) in the following years . The estimated coefficients are relatively stable and strongly significant, but the coefficients of determination (R2) are low, so factors other than the historical quality difference determines the present level. In relation to Poland this result indicates, that it will, over time, specialize in product groups where the quality lag in 1988 was smallest.

In table A in the appendix the crude quality indicator is calculated for the 20 main product groups in the CN classification system. There is some variation relative to the result in table 2. In a single product group XIV, "pearls gemstones, precious metals and products" the quality level of Poland is the higher one. In "textiles and products" (XI) and footwear and headgear (XII) Poland is at the same level as DAE. And in XVI, "machinery and plant, electrical and electronic equipment", product groups normally characterized by high-tech components, Poland is lagging most behind the three control groups, (see table 6 for a more detailed division).

 

 

Tables B to G in the Appendix detail the price-quality competitiveness profile of Poland relative to the control countries. The structures in the tables are based on Aigingers classification, see table 1, extended, so both unit value ratios and weight ratios are divided in three intervals. The interval for unit value ratios between +/-15% shall indicate unit values at comparable levels of quality. With Poland having a high unit value relative to a control group (UVC/UVP <1/1.15), and at the same time taking the bigger market share measured in tons (TC/TP<1/1.15), we interpret Polish firms in this situation to have good quality competitiveness and if the market share is small poor price-cost competitiveness.

Within a number of product groups, Poland has strong competitiveness both in price and quality relative to the DAE-countries. The number of products groups, as well as the export value in which Poland has a strong quality competition, has increased somewhat over the period 1988 to 1996, while there seems to be a stagnation in groups where Poland is dominating in price/cost competitiveness. Competition within the intermediate range with the "same" unit values (competition in horizontal differentiated products or rather homogeneous products) has decreased significantly in value terms. Generally, the Polish competitiveness profile seems to progress more favourably in the sense of an upgrading of the quality competitiveness profile.

Relative to the competitors in the EU(4), Poland is generally weak in quality and strong in costs with the intermediate range of some importance. Over the period 1988 to1996, there has been an increase in product groups and values where Polish price competitiveness dominates and only an insignificant increase in quality competitiveness. The importance of competitiveness in the intermediate range of unit values is also decreasing.

The EU(10) is, not surprisingly, strong in quality and Poland in cost/prices, but the intermediate range also plays a significant role where comparative costs are essential (Poland or EU(10) dominates, but prices are the "same"). Competition with horizontally differentiated products, on the other hands, is not of any importance. For the whole period, Polands competitiveness is increasing somewhat in price elastic product groups, and decreasing in the intermediate range with no improvement in quality competition.

Our general conclusions are that the quality level of Polish export products is lagging much behind Dynamic Asian Economies and the countries in the European Union with only weak signs of catching up (mostly against DAE), but with price competitiveness as the dominating competition pattern. We see also signs of a dynamic export pattern with high death and birth probabilities for export products, but at the same time, with a high degree of stickiness in quality product specialization for the surviving products.

THE ROLE OF FDI FOR THE QUALITY LEVEL OF POLANDS EXPORT

Poland has attracted a reasonable amount of FDI especially since the mid-nineties with 30,000 companies investing a stock of $7,843 million by the beginning of 1996, of which more than 60% from EU(10), 1% from DAE and less than 1% from EU(4), Weresa [1997]. According to different investigations the key motivation for investing in Eastern Europe has been to gain market access, with cheap labour of secondary importance, [Stankovsky 1998] . With export sales from FDI counting as much as 38,1% of total export and imports 47,7% in 1996, according to Weresa [1997], it is hard to believe that the export-base motive is only "secondarily".

By looking at table H in the Appendix, which shows foreign trade of companies with foreign investment compared with total Polish trade by merchandise groups, we get an idea of the motives of FDI in Poland. A negative trade balance in a product group is an indication that the foreign owned companies either import, through their sales subsidiaries, finished products for the Polish market or import intermediates which are given a value adding in Poland with the background primarily for selling in the Polish market. A positive trade balance is, on the other hand, an indication of using Poland as an export base on the grounds of cheap labour. Because of a general Polish trade deficit in 1996 of 51.9% we have, in the last column, upgraded the export numbers in each product group with 51.9%. Disregrading CN XIX (weapons and ammunition) and XXI (art works, collectibles,antiques), which for our purpose are of no interest, we see 6 groups with export surplus and 13 with import surplus. The groups with export surplus are product groups usually characterized as labour and material intensive goods using standard technology. It is notable that textiles and apparels (XI) and footwear and headgear (XII) have export surplus. The products with import surplus are, to a larger extent, characterized as high-tech products (XVI-XVIII).

An investigation done by the State Foreign Investment Agency shows that foreign companies investing in Poland, to a large extent, introduced a newer technology in their firms and that the quality of the used inputs was better than in the local firms, (see Weresa [1997] ). There are, thus, indications that firms with foreign capital have experienced technological and quality upgrading relative to local firms. As a result, there is reason to expect that the quality of Polish export products should have been upgraded, both export from the foreign owned companies but also through imitation from the local ones.

Therefore, on the one hand you could expect an increase in the international quality competitiveness of Poland. On the other hand there is also the possibility, that FDI is done primarily within sectors characterised with relative homogeneous and high price elastic goods, with the purpose to exploit the low Polish wages. Through importing technology (physical and human), the foreign firms in Poland are able to raise substantially the average productivity levels while maintaining, to a great extent, the low wage level determined by the marginal productivity levels in the economy. They are, therefore, able to reduce the export prices and compete more efficiently in the world market. In some cases, the products are re-exported for further value-adding activities in a Western country through intra firm trade, with the risk that the foreign firms use transfer pricing (underestimating of the Polish export prices).

Some possible relations between motives for FDI and the unit value ratio are summarized in table 7.

To analyse if there is some relation between FDI activity and the change in or status of the quality level of Polish exports, we will formulate two alternative or complementary hypotheses, which possibly could count for each of their industries.The first is that;

The quality catch-up effect of Poland is most significant (or the quality "lag-in" effect is most insignificant) in export product groups where Poland has received the relatively most FDI.

The second alternative hypothesis states that;

Poland will see a reduced importance of quality competition and increased importance of price-costs competition because of FDI.

Because we do not have direct FDI data divided according to the CN nomenclature, but only have data on the export share of FDI firms in 21 CN groups, as shown i table H in the Appendix, we will operationalise our two hypothesis by looking at the relation beteween the FDI export ratio and the crude quality indicator both compared at 21-group classification of the combinated nomenclature. The first hypothesis states a positive relation, so;

The bigger FDI export-ratio the smaller the QUC-value.

and the second hypotesis a negative relation, so;

The bigger FDI export ratio the bigger the QUC-value.

In table 8 we present some results of regressions of quality indicators on FDI-trade data.

 

 

For all three groups of control countries, the best model fit is with the export share of FDI companies as the independent (Xifdi/Xi) and the crude quality level in 1996 (QU96) as the dependent variables (both in ln). All three models have highly significant F values and $ ’s and for two of the models also " ’s. The adjusted R2 are reasonable high, but as high as 69% for the EU(10)-models. The negative " ’s in the interval -0.27 to -0.94 fit fine with the fact that the control countries have an excess quality relative to Poland. The positive signs to the $ ’s indicates that the second hypothesis cannot be rejected, so possibly up until 1996, the influence of FDI om Polish exports has primarily been to sharpen Polands international competitiviness within sectors characterized by price competition and only to a smaller extent to sharpen its competitiviness within quality competition. The reason for the better model fit and the higher $ for the EU(10) rather than for the other two control groups is probably because companies from the EU(10) countries are the dominant investors, and that they invest in sectors where their competitors, to a large degree, are other firms in the EU(10).

In spite of the statistical fits shown in table 8, conclusions should be drawn cautiously. First of all, the used quality indicators, as well as the FDI, data are crude. Secondly, the relation between FDI and the quality level of Polish export certainly can go both ways as discussed above. Thirdly, the fact that FDI is a relatively recent phenomenon in Poland and that a lag between the investments and the results in export data is to be expected does not rule out changes in the relation in the coming years.

CONCLUSION

In this paper we have tried to show in the tradition of both Abd-el Rahman [1991] and Aiginger [1997] that the concept of the unit value can be a useful tool in analysing changes in the export structure of a country, in this case Poland. We have emphasized the dynamic aspects of changes in export structure as well as the importance of FDI and, for the first time, empirically combined quality and FDI indicators for a detailed product group level.

Poland has not, until now (1996), shown any significant catching-up relative to the DAE and the EU-countries and seems to specialize in price sensitive sectors, a process, which to some extent, is supported by inward FDI. At the existing level of development, such a specialisation in sectors where Poland has comparative advantages can contribute to growth and capital accumulation and over time to technological upgrading.

 

NOTES
1 It should be mentioned that fully owned subsidiaries to some extent give protection against imitation relative to joint ventures.
2 Western scholars have used the unit values concept primarily to evaluate the quality upgrading effect of trade policy measures, eg. voluntary export restraints, (see eg. Feenstra [1988] ), but also to analyse price competitiveness in world trade, including estimating price elasticities, (see Kravis and Lipsey [1971] ).
3 Since successful quality competition often happens in high-tech products we can also speak of technological competitiveness.
4 In his article from 1997, Aiginger compared export and import unit values and not as we do export unit values for two group of countries in a third country market. We therefore change Aigingers formulation of price versus quality competition to the following: If unit values reflect costs and the product is homogeneous, then countries with lower costs should have the biggest export quantity and countries with the higher costs the smaller one. If a country has the bigger export quantity despite the fact that it has higher unit values, then this must be due to quality differences.
5 When comparing a country's import and export unit values there will be a difference related to cost, insurance and freight (cif. minus fob.) which is not related to the quality difference of the country relative to it competitors.
6 We have no seperate real exchange rates for Poland relative to our control countries. The real exchange rate mentioned in the text is based on Polands trade with 24 OECD countries and 26 transition countries. No DAE-countries are included, but because the DAE countires to a great extent had a fixed exchange rate relative to the US dollars, the trend change in the mentioned real exchange rate should be representative for the DAE countries as well.
7 A high degree of reincarnation of product groups is the reason that the death frequences for the period 1988-96 is much lower than for the two subperiods and one of the reasons for the relatively high birth frequences for the period 1988-96 is the lenght of that period.
8 The break even level is equal to the intersection of the regression line and a line with slope one.
9 The stickiness hypothesis is also confirmed by comparing the QUC in table 2 and in table 3 with Polands quality level relatively more favourable in table 3 indicating, that calculations based on surviving products gives better price/quality levels for Poland, that is the price/quality level for the more unstable products coming and leaving are not favourable to Poland.
10 The robustness of the classifications in tables B to G in the Appendix is to some extent confirmed by the fact that the regression ln(TC/TP)= a + b ln(UVC/UVP) over cells (a) plus (d) and (b) plus (c) respectively in Aigingers table 1 gives the expected signs and significant values of b and acceptable R2s for DAE, but for EU(4) and EU(10) only for the price competitiveness cell (c) plus (d).
11 Remember that the QUC-ratio in defined with the control country in the numerator.
12 The exponential value of numbers in the interval -0.21 to -0.97 gives a positive number.
13 There is indications that the positive relation between the quality level and FDI-export data is stronger for "high-tech products" than for more labour-intensive products.

 

REFERENCES

Aiginger, Karl 1997. The Use of Unit Values to Discriminate Between Price and Quality Competition. Cambridge Journal of Economics, 21: 571-592.

Abd-el-Rahman, Kamal 1991.Firms’ Competitive and National Comparative Advantages as Joint Determinant of Trade Competition, Weltwirtschaftliches Archiv, 127: 83-97.

Amann, Ronald & Jiri Slama 1976. The Organic Chemicals Industry of the USSR: A Case-Study in the Measurement of Comparative Technological Sophistication by Means of Kilogram-prices, Research Policy, 5:302-326.

Aturupane, Chonira, Simeon Djankov & Bernard Hoekman 1999. Horizontal and Vertical Intra-Industry Trade between Eastern Europe and the European Union. Weltwirtschaftliches Archiv, 135 (1): 62-81.

European Bank for Reconstruction and Development (EBRD) 1998. Transition Report 1998, Financial Sector Transition. London.

Falvey, Rodney E. 1981. Commercial Policy and Intra-industry Trade, Journal of International Economics, 11: 495-511.

Feenstra, Robert C.1988. Quality Change under Trade Restraints in Japanese Autos. Quarterly Journal of Economics, 103(1).

Glass Amy J. & Kamal Sagi 1998. International Technology Transfer and the Technology Gap. Journal of Development Economics, 55: 369-398.

Greenaway, David, Robert Hine & Chris Milner 1995. Vertical and Horizontal Intra-Industry Trade: A Cross Industry Analysis for the United Kingdom. Economic Journal 105: 1505-1518.

Grossman, Gene M. & Elhanan Helpman 1991. Innovation and Growth in the Global Economy, Cambridge Mass, MIT Press.

Hauswirth, Rainer & Peter Mooslechner 1998. Measuring the Impact of Exchange Rate Developments on the Competitive Position of Central and Eastern European Countries. In OECD, The Competitiveness of Transition Economies, Paris.

International Monetary Fund, 1995, Direction of Trade Statistics. Yearbook 1995. Washington.

International Monetary Fund, 1998, Direction of Trade Statistics. Yearbook 1998. Washington.

Kravis, Irving B. & Robert E. Lipsey, R. E.,1971, Price Competitiveness in World Trade, National Bureau of Economic Research, New York, Columbia University Press.

Krugman, Paul R.1979. A Model of Innovation, Technology Transfer, and the World Distribution of Income, Journal of Political Economy, 87: 253-266.

Linder, Staffan B. 1961. An Essay on Trade and Transformation, Uppsala, Almqvist&Wiksells.

OECD, 1998, The Competitiveness of Transition Economies, Paris.

Stiglitz, Joseph E. 1987. The Causes and Consequences of the Dependence of Quality on Price. Journal of Economic Literature, 25: 1-48.

Stankovsky, Jan 1998, Contribution of Foreign Direct Investment (FDI) to the Competitiveness of Eastern Europe. In OECD, The Competitiveness of Transition Economies , Paris.

Torstensson, Johan 1991. Quality Differentiation and Factor Proportions in International Trade: An Empirical Test of the Swedish Case. Weltwirtschaftiches Archiv. 127: 183-194.

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APPENDIX

Data

The Danish trade statistics for 1988, 1992 and 1996 at the most detailed level, that is 8-digits in EU Combinated Nomenclature has been used to calculate the quality indices. The CN is dividing products according to the materials they are made by, and are therefore especially useful in unit-value calculations. The values are fob. values ind current prices and weight in tons. Even though the 8-digits level operates with about 10,000 product groups and we can escape the sectorial aggregation problems seen in other studies and some unwanted heterogenity problems cannot be avoided. We have tried to avoid problems with outliers because of faults in customs clasiffication by demanding a minimum export value at 200,000 DKK for each country within each country group and by discarding unit value ratios bigger and lesser than 10 and 0.1 respectively. Data for FDI is based on Weresa [1997] using the CN-classification, aggregated to 21 product groups.

 

Country groups

Country Groups

Individual countries

DAE: Dynamic Asian Economies

China, Indonesia, Korea, Malaysia, Phillipines, Taiwan, Thailand

EU(4): Poorer EU-countries

Greece, Ireland, Portugal, Spain

EU(10): Richer EU-countries

Austria, Belgium&Luxembourg, France, Finland, Germany, Italy, Netherlands, Sweeden, UK