17 performance in OECD markets, on the other. The results are tenuous at best, however, as all policy variables were in a state of flux during the initial stages of the transition from central planning.

The major external factor was the collapse of the CMEA, wl- '*h increased the proportion of aggregate output no longer demanded in CMEA markets. Goods previously exported to the CMEA became available for domestic consumption and/or export to other trading partners; in the extreme, production capacities for unwanted goods would be shut down.<sup>14</sup> The major changes in domestic circumstances were the liberalization of prices and restrictive monetary and fiscal policies, together with the introduction of changes in the incentive structures for SOEs (which remained dominant economic actors during the initial stage of the transition). These measures produced a shift from a supply- to a demand-constrained economy, to borrow an apt phrase from Janos Kornai, and led to a dramatic change in the domestic demand structure--a very significant contraction of demand for some products and some increases for others. The net result, however, was a fall in aggregate domestic demand.'5 The combination of these changes with the introduction of limited current account convertibility and liberalization of the foreign trade regime provided incentives to domestic firms to look for markets abroad.

# A. The Collapse of the CMEA

For the period under discussion, the collapse of the CMEA was the only external event with potentally significant implications for Central European exports to the OECD. Although the change in the polidcal status of the region vis-a-vis the West clearly had a positive impact on its export performance in 1990 and 1991, this cannot explain the dramatic shift in export patterns. The region's access to OECD markets did not improve dramadcally, although the extension of GSP (Generalized System of Preferences) treatment to Central European countries played some role.'<sup>6</sup> (it was irrelevant for Romania which had had GSP status,

> 14 As long as the CMEA-TR settlements mechanism existed, there was also another temporary option: a government might subsidize its domestic producers by running a trade surplus in TRs, thereby subsidizing another country (or reducing its non-convertible currency debt). This option was pursued by the Polish government in 1990, mainly in its trade with the FSU.

15 For a summary of factors contributing to the fall in aggregate output in Central and Eastern Europe, see Blejer ard Gelb (1992:1-3).

16 The EC granted GSP to Hungary and Poland in 1990, and to Czecho-Slovakia and Bulgaria on January 1, 1991. Although all GSP schemes granted unilaterally by industrial countries exclude major textile and clothing products in which the CEE-5 have comparative advantage (Erzan, Holmes and Safadi, 1992:26), EC quotas for imports from the CEE-5 were significantly raised. In addition, thanks to the GSP status, the simple average tariff on CEE-5 imports significantly declined from around 8 percent in 1988 to 1 percent in 1991. Calculated from the UNCTAD-World Bank SMART (Software for Market Analysis and Restrictions on Trade) data base.