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# **D** **_._** _Factors’ content and emerging patterns of specialization in EU markets_

The share of the EU in Bulgaria’s trade has been growing since the collapse of central planning. Sales in EU markets have largely determined Bulgaria’s overall export performance. Several questions arise in this context: What products in terms of factor intensities have driven this expansion? How firmly entrenched are they in EU markets?

The anomaly of Bulgaria’s export performance in terms of factor intensities, that is, relatively weak growth of unskilled labor exports, disappeared during the crisis phase of 1997-99, with exports of both capital and skilled labor intensive products significantly retracting. While the 1996-99 period sets Bulgaria apart from other CEEC-10 in terms of prolonged stagnation in EUoriented exports, the emergence of unskilled labor intensive product as the only ‘growth’ group was similar to trends observed in other CEEC-10 economies during the initial stages of transition. Unskilled labor intensive products, mainly clothing, were the only exports that consistently grew in terms of value over 1997-99 with an average annual rate of 7 percent. Their share in total EUdestined exports grew from 24 percent in 1995 to 38 percent mainly at the expense of capital and skilled labor intensive products, whose aggregate share declined from 39 percent to 29 percent (Table 23). Reflecting differences in endowment in production factors between the EU and Bulgaria, Bulgaria’s exports of both natural resource and unskilled labor intensive products were significantly larger than their imports from the EU.

**Table 23:** _Dynamics of EU-oriented exports in terms of factor intensities (in percent)_

||Avera<br>(in cur<br><sup>1991-96</sup>|ge growth<br>rent US d<br><sup>1997-99</sup>|rate<br>ollars)<br><sup>2000-03</sup>|Change<br>Index, 1996<br>1991=100|in share in e<br>Index 1999 <br>1997=100|xports<br> Index 2003 <br>2000=100|Change i<br> Index, 1996<br>1991=100|n share in E<br>Index 1999<br>1997=100|U imports<br>Index 2003<br>2000=100|
|---|---|---|---|---|---|---|---|---|---|
|Natural Resource|11.3|-1.1|7.5|78|98|89|143|106|114|
|Unskilled Labor|21.4|7.3|14.1|120|124|113|199|113|129|
|Capital Intensive|20.3|-8.1|10.1|114|78|98|176|65|136|
|SkilledLabor|20.2|-5.1|8.7|114|86|93|197|71|100|
|All abovegoods|17.1|-0.3|10.5|N/a|N/a|N/a|168|91|126|

Source: Based on EU Data from UN COMTRADE Statistics.

Notwithstanding differences in dynamics, Bulgaria’s specialization profile, as captured by export specialization (ES) indices,<sup>17</sup> has remained unchanged during transition. Bulgaria has had “revealed comparative advantage” in unskilled labor and natural resource intensive products in EU markets. Except for natural resource intensive products in 1996-97 and 2001, the values of ES for both groups have been above unity in 1991-2003 (Table 24). However, the intensity of specialization in unskilled labor intensive products in EU markets has been very strong, whereas that in natural resource intensive products has been much weaker and declining.

The changes in the shares of factor intensity groups in EU external imports over 19912003 further corroborate these observations. Bulgarian producers of unskilled intensive products have consistently outperformed their competitors from other countries and seen their share in EU imports growing almost each year over 1991-2003. Performance of natural intensive producers in Bulgarian was rather lackluster. Their share in EU external imports exceeded its 1995 peak level of the 1990’s only in 2002-03 and only by three percentage points. Producers of both skilled labor 17 The export specialization index (ESij) for a product _j_ of country _i_ , is specified here as follows: ESij = (xij/Xi) /(mj/M), where: xij is country i’s exports of product j to the EU; Xi = Σ j xij is country i’s total exports to the EU; Mj = Σ j xij is EU’s total ‘external’ imports of a product _j_ ; M = Σ i Σ j xij is EU’s total external imports. A value for this index below unity indicates a comparative disadvantage. If the index takes a value greater than unity, the country is considered to have a "revealed" comparative advantage in the product. In this particular case, Bulgaria has a revealed comparative advantage in a product if its export of that item as a share of its total exports exceeds the EU imports of the item as a share of EU total imports.