Dynamic of trade patterns in the baltic states

In the recent literature, a lot of theoretical and empirical works have been devoted to the problem of trade dynamics. The interest in this topic has been generated by globalization, deep structural changes, the development of emerging markets and some other problems.

Although the development of specialization pattern is a long-term process, determined by changes in the factor endowments, there are some exceptions, in which structural changes occurred quite quickly. The Baltic States belong to these exceptions.

The aim of this paper is to analyse the trade dynamics in the Baltic States, in particular, the development of a revealed comparative advantage (RCA), and the persistence and mobility of trade flows. For this purpose we used an export data time series from the UNSTAD database for the years 1995-2011. We analyse the development of the distribution of the comparative advantage using descriptive statistics, Galtonian regression, and Gini coefficient. Intersectoral specialisation dynamics is investigated using Markov transition probability matrix.

Despite some contradictory results obtained using different methodologies the following general conclusions can be formulated.

Diversification is the general trend in the development of the comparative advantage structure in the Baltic States. The most polarized structure of specialization in the considered period is in Latvia, the most diversified is in Estonia. However the degree of mobility varies significantly between countries.

Analysis of Markov transition probability matrix reveals that trade patterns is highly persistent for the sectors with strong comparative advantage and strong comparative disadvantage. It is shown that the probability of remaining in the same class for analysed sectors is high. Commodity groups that belong to the intermediate classes exhibit higher mobility.

The share of primary products and the comparative advantage in this group decreased most significantly in Estonia. In Latvia the share of the product groups with a comparative advantage increased. The share of natural-resource intensive products decreased in all three countries, the share of commodity groups with comparative advantage also reduced. The share of technology-intensive goods rises in all countries. However only in Estonia and Lithuania the comparative advantage in this group increased significantly.

Keywords  Foreign trade. Baltic States. Specialisation. Revealed comparative advantage. Balassa index.

JEL F15 , O57