Which Factors Are Crucial in Explaining Vulnerability of Countries to the External Macroeconomic Shocks? The Case of the Central and Eastern European Countries

Abstract

Many scientists highlight the importance of trade openness on the vulnerability of countries to the external macroeconomic shocks. The scientific literature provides substantial evidence that a domestic economy may suffer a loss due to increased openness of an economy. For this reason this empirical study focuses on vulnerability of countries to the external macroeconomic shocks and macroeconomic shocks transmission through real channel in the CEECs. The main research questions are: which determinants explain vulnerability of countries to the external macroeconomic shocks and which type of external macroeconomic shocks cause the spillover effect transmission? The objective of this study—to identify the determinants explaining vulnerability of countries to the external macroeconomic shocks and the macroeconomic shocks transmission through real channel in the CEECs. The research object—the CEECs. The research methods: the systemic, logical, and comparative analysis of the scientific literature and statistical method: panel regression analysis, cross-sectional panel regression. The main findings are that the exchange rate shock (depreciation of the currencies of the main export partners) positively affects the real GDP growth of CEECs, however, depreciation of foreign currencies decrease the export flows to these countries. The economic growth in the main export partners positively affects the real GDP growth in CEECs and real export flows to these countries and the positive effect is stronger on the real export flows. The increase of consumption in the main export partners positively affects the real GDP growth in the CEECs, however, a negative impact of consumption on the real export flows to the main export partners is observed. The empirical results also suggest about positive impact of import growth in the main export partners. The empirical results on the vulnerability of CEECs to the external macroeconomic shocks suggest that the more divergent export structure of a country from world structure is, the higher volatility of country’s real GDP is and trade openness of country also increases the volatility of country’s real GDP.