Macroeconomic Problems of Trade Liberalisation and EU Eastern Enlargement

We concentrate our interest in this chapter upon the four Central and East European countries (CEECs): the Czech Republic, Hungary, Poland and the Slovak Republic, which have already concluded association agreements with the European Union, and we shall investigate only two new moments which are generally expected to happen after the CEECs have joined the Union. These are: a much stronger inflow of foreign capital, especially foreign direct investment (FDI), and price changes related to the opening of the common market to sensitive goods, especially food and textiles and footwear. We analyse the macroeconomic consequences of these two developments in a rather general manner. First, a model of GDP determined by aggregate demand is presented which takes special account of the consequences of the abrupt foreign trade liberalisation at the start of the transformation. In subsequent sections the model is then used for the question of the macroeconomic consequences of foreign capital inflows, and of the expected price changes in sensitive goods.