Upgrading and relative competitiveness in manufacturing trade: Eastern europe versus the newly industrializing economies

The purpose of this paper is to compare a group of three countries of the Council for Mutual Economic Assistance (Czechoslovakia, Hungary and Poland, hereafter CMEA(3)) and of
three newly industrializing economies (Hongkong, the Republic of
Korea and Taiwan, hereafter NIE(3)) with respect to the competitiveness of their manufacturing exports to Western Europe. 1 In order to
get an indicator of changing competitiveness, we will first apply a
constant market-shares analysis. Second, differences in competitiveness will be explored in terms of quality differentiation. This part of
the analysis will be restricted to clothing (SITC 84), because clothing
is the only 2-digit commodity group with a share exceeding 5 per cent
of the manufacturing exports to EUR(8) of both CMEA(3) and
NIE(3). Taking relative unit values of the different trade flows as an
approximation of quality levels, we will pose the following hypotheses: (i)the clothing exports of NIE(3) and CMEA(3) are concentrated at lower quality segments than the exports of the developed
countries; (ii) industrialization of NIE(3) is accompanied by a process
of upgrading which results in higher relative unit values of its clothing
exports and a move into higher quality segments; (iii) as a consequence of upgrading, NIE(3) competes to an increasing extent with
CMEA(3) on the same quality segments.