Relationships with the West (and the rest): Trade integration in Socialist Europe, 1945-1989

Eastern European countries share a lot of history with the West. Their economic development, however, could hardly be more different. Industrialisation reached these areas mostly in the 20th century and would be completed after World War II in some cases (Eichengreen 2008). At the same time, these countries turned towards a new organisational system of society, Socialism, that had a completely different understanding of economics. Its impact on development is ambiguous in the first decades. Even though these countries did manage to receive some catch-up growth until the 1970s, they never reached the respective development levels of their Western counterparts (Bolt and van Zanden 2020). The following decades until the 1990s could be described as an era of relative stagnation followed by a decline during the transition towards a market-based system (Vonyó 2016; Berend 2011). Despite its geographic proximity and importance in understanding 20th-century history, we know relatively little about economic policies in Socialist Europe. This also includes trade policy which is surprising given that balance of payments issues, which are heavily intertwined with foreign trade, were constantly debated over decades and are sometimes even considered the main cause of the fall of Socialism (Volze 1999).

Even though there is substantial literature on the economic growth and development of Eastern Europe during the Cold War, foreign trade plays a relatively small role in it although Kukic (2020) notes that TFP growth was influenced by it. In recent years, two types of literature emerged. On one hand, economists tried to quantify different aspects of Socialist policymaking and development such as the size of Soviet trade subsidies (Stone 1996) or the increasing productivity gap (Broadberry and Klein 2011). On the other hand, historians tried to describe trade policies for specific countries without evaluating their use and impact (see, for example, Eloranta and Ojala 2005). This project plans to merge the two strands by using historical accounts to evaluate policies rigorously and interpreting the results to contribute to the growing literature on Eastern European economic development.