The Degree of Diversification of Ex-communist States Production and the Possibility of Reducing Economic Shocks

Abstract

A global economy – essentially characterized by the free movement of capital and by the development of cross-national societies, the internet being its primary technological support – provides some advantages but, inevitably, it also implies certain disadvantages, for instance transferring the effects of the financial or economic crisis, which at some point affects a state (playing an important part in the international economic-financial transactions), over the other states in the world. Hence, the degree of diversification of production is important for a national economy because the more diversified the production is, the more the impact of shocks specific to the different economic sectors are reduced and dispersed, so that economy on the whole is less exposed to the shocks generated by the changes in volume or structure of the supply or demand both on the internal and the external markets. But diversification of production is conditioned by a series of factors such as: the size of a national economy, the degree of economic growth, the tendency towards the production specialization according to the comparative advantages, generated by the need of high productivity and a higher competitiveness in foreign trade. For the ex-communist countries, diversification of production may be a criterion in the analysis of the opportuneness of joining the euro area. We also think that in the context of the “new economy” it is important to take into account the high influence of capital on production because the free movement of capital increases supply and demand volatility.