Finding the True Advantage - A Study on the Effects of EU Integration on Industrial Specialization in the Countries of the Former Czechoslovakia

This paper analyzes how the integration into the EU, beginning with the signing of the Europe Agreement in 1991, has influenced the structural dynamics of production and trade in the countries of the former Czechoslovakia. The aim is to assess if the existing differences in economic performance (with a substantially higher per capita GDP in the Czech Republic but a higher rate of economic growth in Slovakia) can be derived from differing industrial specialization and trade patterns, evoked by increased EU integration. OECD trade data on the 4-digit level of the SITC is in the analysis used to calculate specialization indices, cumulative export experience functions as well as revealed comparative advantages concerning trade between the EU15 and the two countries respectively. These measurements are thereafter evaluated to determine the structure of the industrial re-organization taking place due to EU integration. The analysis shows that both countries have experienced a shift in exported commodities from labor and low skill intensive manufactures to medium and high skill commodities of non-traditional nature. The most important finding, however, concerns export revenue concentration, which is significantly higher in Slovakia compared to the Czech Republic. This might have impeded economic growth in Slovakia and may also weaken the prospects of future success if the dominating industry not manages to maintain its major advantage and keep pace with the global progress.