Are the Central and Eastern European Countries More Vulnerability to the External Shocks?

Abstract

Due to the higher degree of economic openness, the Central and Eastern European countries (CEECs) are more exposed to the external shocks that can be transmitted through international trade channel. The CEECs are one of the most open economies worldwide those have undergone different types of shocks and structural changes during the last two decades. This raise a question: are the CEECs more sensitive to the external shocks compared to most developed countries worldwide? The main findings are that the CEECs with higher share of final domestic consumption and export are more vulnerable to the domestic and global shocks. The CEECs with higher share of gross value added by agriculture, hunting, forestry, fishing, manufacturing, wholesale, retail trade, restaurants and hotels, transport, storage, and communications are more sensitive to different shocks, while these economic activities are focused on domestic market. Higher concentration and diversification of import portfolio of the CEECs affect higher volatility of real GDP. In other words, in the CEECs where import is concentrated on several products and similarity of the import structure between a given CEEC and the rest of the world is lower, volatility of real GDP is higher. In conclusion, the empirical results provide substantial evidence that the CEECs are more vulnerability to the domestic and external shocks.