Evolving sophistication of trade patterns in a transition economy - machinery exports of Poland 1980-2009

Abstract: Polish history leads to an expectation of exceptional adaptability to changes in the international economic environment. In the period bigenning with Solidarity at Gdansk to the present, Poland has faced huge structural dislocations. Is there any objective indication that the structural changes needed to successfully compete as a full-fledged European Union member were forthcoming? This study examines the behavior of four separate measures of embodied "sophistication." Though methodologically unrelated, these disparate indices tell a common story of rapid and substantial progress in the "battlefield" of a new member of the European Union.Keywords: Trade Patterns in a Transition Economy; Machinery and Transport Equipment; Exports; Poland; Solidarity; Structural Change; Sophistication Indices; Trade Specialization Index; Intra-Industry Trade; Shock Therapy; Revealed Comparative Advantage; Herfendahl-Hirschman Index; Standard International Trade Classification; Compositional Shifts; Data Aggregation; Dispersion; Market Power.JEL codes: FO, F1, L0, L1, L6, N0, N6, O1, O52, P2, R1.(ProQuest: ... denotes formulae omitted.)IntroductionA cursory examination of Poland's history suggests that the Polish society and economy would likely exhibit a relatively large resiliency to change. From the middle of the seventeenth century to the present, Poland found itself continually sliced up, and at times totally swallowed up by its neighbors, the Prussians, Russians and AustroHungary empires (and the Swedes). Then, in the mid twentieth century, again Poland was devoured by Germany and Soviet Russia, absorbed into the Third Reich, and following subsequent territorial adjustments, became a political and economic satellite of the Soviet empire. This suggests that again and again, Poland found itself affected by one or another border adjustment; adopting, dealing with, and adjusting to constantly changing trade regimes. In other words, trade with any given neighboring province or town was likely to evolve into international trade at one time or another. This must have left a remarkably flexible ability to handle changes. In the nineteen eighties, once again Poland found itself facing a fundamental change in its political and economic environment. In short, one would expect the unusually high degree of adaptability to unexpected changes to translate into a high level of competitiveness in today's rapidly shifting economic scene.In about forty years preceding this last change, Poland essentially played the economic role of a component in a state-trading system, the Council for Mutual Economic Assistance (COMECON), designed to ensure stability in the provision of inputs to the Soviet five-year plan needs. The change in the early 1980s was a dramatic one, as Poland then faced great potential gains and also risks of "privatization" at an international level. No longer did five-year plans dictate "norms." A guaranteed international market for its production no longer existed. Suddenly, Poland had to find its niche in the competitive and sophisticated markets of the European Union. One may have expected that the shift from the Soviet economic orbit to a trading partner and ultimately a member of the European Union (EU) would lead to a growth in the level of sophistication in Poland's exports.This paper explores the data of Poland's exports of machinery and transport equipment (henceforth referred to as "machinery") for evidence of an increase in the level of sophistication in Poland's machinery exports. For a discussion explaining the focus on this particular product sector, see Appendix.The concept of trade sophistication is rather difficult to conceptualize, and even more complicated to measure and quantify. Four methods are used in this paper to identify and track the degree of sophistication in Poland's exports during the critical transition period of 1980-2009. The first is the degree to which Poland's exports are focused on and specialized in the relatively sophisticated key product sector of 'machinery and transport equipment' (Standard International Trade Classification (SITC 7)). …