The Impact of Accession to the EU on Bulgaria’s Export Specialization

1. The Impact of Accession to the EU on Bulgaria’s Export Specialization Assoc. Prof. DimitarHadjinikolov, DSc University of National and World Economy, Sofia, Bulgaria

2. The Impact of Accession to the EU on Bulgaria’s Export Specialization • Since January 1, 2007 Bulgaria has been a full member of the European Union and part of its single internal market. It participates along with other members in the EU common policies, and in particular in the Common commercial policy. • Has this changed Bulgaria’s export specialization? • To what extent Bulgaria has been impacted by the current structure of the European economy? • To what extent a common commercial policy can be carried out, including Bulgaria? • To answer these questions first of all, we have to analyze the existing situation at the time Bulgaria joined the EU. Then, wehave to followthedynamics of differencesinexportspecializationbycomparingchangesinBulgariawiththechangesinsomeothernewMember States.

3. The Impact of Accession to the EU on Bulgaria’s Export Specialization • Differences in industry structure affect the export commodity structure of Bulgaria and EU as we can see in the figure below. Commodity structure of Bulgaria’s and EU exports in 2006 (before accession to the EU) and in 2009 by SITC production sections (in %). Note: The SITC (Standard International Trade Classification) production sections are as follows:0 - Food and live animals; 1 - Beverages and tobacco; 2 - Crude materials, inedible, except fuels; 3 - Mineral fuels, lubricants and related materials; 4 - Animal and vegetable oils, fats and waxes; 5 - Chemicals and related products, n.e.s.; 6 - Manufactured goods classified chiefly by material; 7 - Machinery and transport equipment; 8 - Miscellaneous manufactured articles. Source: Eurostat

4. The Impact of Accession to the EU on Bulgaria’s Export Specialization • However the figure cannot give us an answer to the question whether our expectations have been met regarding approximation between Bulgaria’s and EU export specialization as a result of integration. • To give an answer to these questions, a more precise qualitative analysis has to be made. It is also necessary to compare the process in Bulgaria with similar processes in other new EU Member States. For this purpose we use the export specialization index: • ESIij = (xij/Xwj) / (mij/Mwj) • where ESIij is the export specialization index of the country iin the commodity section j, xij–the exports of country i in commodity section j, Xiw–the world exports in commodity section j, mij– the imports of country i in commodity section j, Mwj– the world imports in commodity section j. Statistical data were obtained from the database of the World Trade Organization. The commodity sections aredefinedaccording to Revision 3 of the Standard International TradeClassification (SITC) as follows: Agriculturalproducts (SITC sections 0, 1, 2, 4 minus 27 and 28): Miningproducts (SITC divisions 27, 28 and SITC division 68); Fuels (SITC section 3); Ironandsteel: (SITC division 67); Chemicals: (SITC section 5); Machineryandtransportequipment: (SITC section 7); Textiles and clothing (SITC division 65, 84); Other manufactures (SITC sections 6, 8 minusdivision65, 67, 68, 84and group 891).

5. The Impact of Accession to the EU on Bulgaria’s Export Specialization • Findings Absolute values of deviations of export specialization indexes (ESIs) of Bulgaria and Romania from ESIs of the EU

6. The Impact of Accession to the EU on Bulgaria’s Export Specialization • Findings Absolute values of deviations of export specialization indexes (ESIs) of Hungary and Slovak Republic from ESIs of the EU

7. The Impact of Accession to the EU on Bulgaria’s Export Specialization • Conclusions • During the first two years of EU membership a significant change can be seen in its export specialization with a shift towards the export specialization of the EU. The sum of the absolute value of the deviations in the ESI by commodity sectors between Bulgaria and the EU shows a decrease of 2.4 points for the period 2006 – 2008 from about 5.0 to about 3.6 points. • This development of Bulgaria’s export specialization is not accidental, because it can also be seen in the approximation of export specialization between Romania and the EU. For the same period of 2006 – 2008 the sum of the absolute values of the deviations in the export specialization index by commodity sectors between Romania and the EU shows a decrease of about 0.5 points from 3.4 to 2.9 points. • It can also be concluded that the process of approximation of exports specialization of the newly joined states from Eastern and Central Europe to the EU export specialization covers Member States both from the first wave of EU Eastern enlargement in 2004 and from the second wave in 2007.

8. The Impact of Accession to the EU on Bulgaria’s Export Specialization • Conclusions • However, we can see that the countries from the first wave (Hungary and the Slovak Republic) had achieved an export specialization significantly closer to that of the EU, compared to the countries from the second wave (Bulgaria and Romania). This is partly due to the longer impact period of integration which the countries from the first group had and also due to the differences among the analyzed countries at their starting point of integration. • It should be mentioned also that the process of approximation in the export specialization between Bulgaria and the EU can lead to growth in Bulgaria’s national industrial production as well as to a slowdown. Approximation can be achieved by increasing the output in the industry sectors, which are prevalent in the EU (machine building, transport equipment, chemical industry) or by decreasing the output in the industry sectors, which are not typical of the EU (textiles and clothing, ceramic industry, metallurgy, etc.). Which type of approximation will prevail in Bulgaria in the future years will depend on firstly, the volume of foreign investments attracted into the country and secondly, on the industry (sectoral) orientation of these investments.

9. THANK YOU FOR YOUR ATTENTION Assoc. Prof. DimitarHadjinikolov, DSc, PhD University of National and World Economy Sofia, Bulgaria e-mail: dimitar.h@live.com