TRADE OPENNESS AND VULNERABILITY IN CENTRAL AND EASTERN EUROPE

Montalbano, Federici, Triulzi and Pietrobelli (Chapter 9) take up the issue of increased vulnerability, resulting from trade liberalization, as experienced by countries in Central and Eastern Europe (CEECs) since the early 1990s.10 Focusing on macro vulnerability, their analysis shows that the extremely high volatility of consumption observed in this region is strongly related to trade shocks, the high volatility of trade openness, and terms of trade. Hence they suggest that trade liberalization, as implemented in the 1990s, might have in fact worsened growth and welfare performance in Eastern Europe. They also found that the per capita income of the poorest quintile of the population is most vulnerable to these trade shocks. On the basis of their empirical evidence, they argue for the need to adopt, in the case of emerging and transition countries, forward-looking national policies to support their process of trade liberalization, policies both to mitigate the impact of trade shocks and to enhance the coping mechanisms. They also call for improvement in the governance of the globalization process by establishing a new ‘culture of prevention’ and designing mechanisms to limit the size and frequency of shocks at the international level.