Geopolitical Legacies and Central European Export Linkages: A Historical and Gravity Model Analysis of Hungary

Abstract

This paper analyzes Hungary's export linkages of the interwar and Cold War periods using gravity model and historical analyses. Hungary is a useful example of former Soviet satellites because it combines relative political stability (since 1956) and experimentation with the New Economic Mechanism (NEM) during the 1970s and 1980s. Historical analysis reveals seven events since World War I that changed Hungary's trade patterns. Gravity model analysis for 1955, 1965, 1975, and 1985 shows the dramatic cleavage of the “Iron Curtain,” the effect of the NEM, and particularly strong and weak linkages for Hungarian trade that may result from historical legacies, complementarity, or specific political contacts.