Agri-food trade between Hungary and the European Union

Abstract

Hungary becomes a member of the EU in 2004. As a precursor to full accession, an Association Agreement, signed in 1991, has promoted partial liberalisation of bilateral trade. This thesis investigates the pattern of agri-food trade between Hungary and the EU during the 1990s, employing various theoretical concepts and empirical methods. Hungary is a major agricultural exporter and its pattern of trade over the period remained fairly stable. However, economic and policy changes probably served to worsen the prospects for exports. Indeed, Constant Market Share analysis indicates that Hungary's general competitiveness in EU markets fell. This is also apparent from the indices of Revealed Comparative Advantage which, although suggesting that Hungary has comparative advantage in livestock and arable products, show evidence of an overall decline. A slight growth in intra-industry trade (11T) in agri-food products between Hungary and the EU is shown to be not uniforin by product group or EU member state, or over time, reflecting different patterns of bilateral integration and suggesting an economic restructuring process that is incomplete. Intra-industry trade is shown to be low and dominated by vertically rather than horizontally differentiated products. In a dynamic context, marginal IIT appears also to be low, but assumes greater significance when the index is broadened to include vertical as well as horizontal marginal IIT. Accordingly, the structure of the change in agri-food trade between Hungary and the EU during the period is shown to be predominantly either intra-industry of a vertical nature or inter-industry. Both are believed to incur adjustment costs that are higher than with horizontal HT, but the dominance of vertical IIT suggests that the agri-food industries of Hungary and the EU may be developing in a complementary manner, involving somewhat lower adjustment costs than may have been feared. Tests for the detenninants of Hungary's IIT in agri-food products suggest that separating the measure of lIT into its honzontal and vertical components provides for better estimation and supports the contention that the determinants may differ by type of trade. The level of IIT is found to serve as a better dependent variable than the degree or share of IIT.