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C H A P T E R 6 The Levels of Resource Endowments Implicit in Eastern European Trade Patterns: Estimates for Eleven Endowments These figures show that an average million dollars worth of our exports embodies considerably less capital and somewhat more labor than would be required to replace from domestic production an equivalent amount of our competitive imports . The widely held opinion that—as compared with the rest of the world—the United States' economy is characterized by a relative surplus of capital and a relative shortage of labor proves to be wrong What is the explanation of this somewhat unexpected result? The very high productivity of American—as compared with foreign—labor plays a decisive role in the determination of the composition of those United States exports and imports which do not reflect directly the presence or absence in this country of certain natural resources —Wassily Leontief (1953,1956)1 I here is a distinguished tradition to the notion that foreign-trade data can reveal information about the internal affairs of a country. Leontief 1953, 1956 apparently had no doubt about the meaning of his results, which others later interpreted as paradoxical. He viewed these results as demonstrating a feature of the economy that was not apparent from conventional statistics. The present chapter is written in the same spirit. I estimate the stocks of endowments implicit in the trade patterns of the CPEs and evaluate which hypotheses best explain these estimates. The sections containing the main empirical results of the present chapter, 6.3 and 6.4, provide a wealth of new information on the socialist economies. Many of the statistics presented in those sections have no counterparts in the existing literature. The present chapter therefore contributes to the understanding of the comparative behavior of the CPEs, quite apart from the pre- ' Here quotes from two sources are combined to give the most succinct statement of Leontief's position. Endowments Implicit in Trade 157 sentation of much evidence that is pertinent in examining the implications of the Schumpeterian and neoclassical paradigms.2 The evidence relevant to those paradigms comes in the form of examination of the hypotheses of Chapter 3, whose relevance to the major themes of this book was summarized in Table 4.1. The concluding section of this chapter examines the central message of this chapter's results for those two paradigms. Section 6.3 presents estimates of the amounts of eleven resource endowments implicit in the trade patterns of nine Eastern European countries in 1975. This evidence allows one to reexamine widely accepted hypotheses using new information on all the Eastern European countries. For example, there are new insights into Rosefielde's (1973) hypothesis that there is a capital intensive bias to CPE trade. The results on resource endowments also allow one to examine widely held hypotheses that have been insufficiently investigated in the past. For example, the data reveal whether the use of land in the CPEs is affected by the low price attached to that resource. Moreover, the information presented in Section 6.4 can offer insights into the nature of the economic performance of specific countries. For example, Poland's economic difficulties are quite clearly reflected in extreme distortions in its pattern of trade at a very early stage. Section 6.4 shows the evolving pattern of the resource content of CPE trade from 1966 to 1983. These results clearly reveal the reactions of the socialist economies to changes in the economic environment. One can detect, for example, the effects of the Soviet price reform of the mid-1960s, the changes caused by the decentralization of the Hungarian economy in 1968, and the reaction of the CPEs to the world energy price changes of the 1970s. All these events are clearly reflected in the results, which reveal characteristics of the countries' behavior that are not readily apparent in statistics constructed using more conventional techniques. Because the methods by which the results are obtained are new, the presentation of the empirical work must be prefaced by a lengthy discussion of methodology. Readers who are interested purely in the results could skip that discussion and turn immediately to Sections 6.3 and 6.4. In doing so, they must remember that the intervening sections contain much information that allows one to place the results in perspective, especially deliberation on the critical assumptions invoked to produce the results. The starting point of the methodology is the application of the econometric techniques developed in Sections 5...


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