THE NEW GEOGRAPHY OF EASTERN-EUROPEAN TRADE

This paper is meant to answer the question whether the CMEA countries trade flows have been able to catch up with their trade potential. The gravity equations estimated over a panel of 14 years show that there is a room for an increase in trade, which could compensate for the hug e regional trade losses. But, if one takes into account the higher tha n average transportation costs in East Europe, this potential increase may only be reached through the reduction of these transportation cos ts and through further liberalisation of regional trade flows. How cos tly has been the disintegration process? The computation of gross trad e destruction (GTD) versus trade creation (TC) minus external trade di version (ETD) in the framework of the Viner model reflects the decreas ing costs of the CMEA break-up: a dramatic trade reorientation has tak en place, and it is welfare improving.