Why The U.S. Has `A Lot To Play For' In Eastern Europe

The U.S. and other industrial nations should reap the benefits of billions of dollars in increased trade if former Soviet bloc countries are successfully trasnsformed into market-driven economies. That's the conclusion of a recent study by L. Alan Winters and Zhen Kun Wang of the University of Birmingham.

Their econometric model depicts what East bloc trade would have looked like in 1985 if the nations had had market-based rather than centrally planned economies. It indicates that East bloc trade with the developing world would not have differed significantly from the trade flows that actually took place in that year. But trade with the industrial countries, particularly Japan and the U.S., would have been far higher.

Under the free-market scenario, the two economists estimate that East bloc exports to the U.S. would have been $44 billion and U.S. exports to bloc nations would have hit $50 billion in 1985 -- compared to the actual amounts of just $1.7 billion and $3.7 billion, respectively. What's more, Winters notes that such trade flows would enhance both sides' trade with other nations, as well.

While transforming East bloc economies into market systems "is clearly a game worth playing on both sides," says Winters, the U.S. in particular "has a lot to play for."

    Before it's here, it's on the Bloomberg Terminal.