Sourcing Inputs from China for Central and Eastern European Countries' Exports

Abstract

Abstract: This article highlights the role of sourcing inputs from China for Central and Eastern European (CEE) countries' exports and sheds light on the rising trade deficit between China and the se countries. Research findings on gross and value-added trade panel data for 12 CEE countries suggest that a 10 per cent increase of imported capital inputs from China would cause an overall increase of 2.4 per cent in CEE exports. The effect is more pronounced for both intermediates and capital inputs imported from China, taking domestic value-added exports into consideration. By taking into account the possible endogeneity in baseline regression and the COVID-19 pandemic as an instrument of supply shock for imports from China, findings affirm that sourcing from China has promoted significantly CEE countries' gross exports as well as domestic value-added in exports. Moreover, the export boosting effect affects significantly the intensive margin. This article has rich policy implications for CEE countries to improve trade deficits with China.