Virtually all the evidence unearthed in this study points to large and in many cases growing differences between the trade patterns between Slovenia and Macedonia. These include the following about the latter relative to the former:
• it has more unbalanced trade and a more unstable set of trading partners;
• it is less EU-oriented in its trading partners;
• its overall exports tend to be more labor intensive and to have lower levels of processing, and even the importance of labor-intensive products is declining in favor of ones in SITC sectors 0-2;
• its trade with the EU is much more concentrated on the export side, and somewhat more concentrated on the import side;
• the structure of its exports to the EU differs enormously from Slovenia’s and the difference is growing rapidly;
• it has very few high wage sectors in its exports to the EU; and
• it engages in extremely little intra-industry trade with the EU (although the unit values of that IIT in which it does engage are not appreciably lower than the equivalent figures for Slovenia).
Overall, these results help us to answer the three questions posed earlier in the paper.
First, the evidence on foreign trade suggests that Macedonia’s economic transition is
proceeding fitfully and, more disturbingly, that its lag behind the leading transition countries is in many cases growing. Second, it implies that Macedonia is a developing country, at least as much as such other Balkan countries as Bulgaria. Finally, on the export side, fairly rapid structural changes are occurring in Macedonia’s trade with the EU, but they are generally in perverse directions. It may be that rather than distorting the country’s trade patterns,
belonging to former Yugoslavia was helpful in this regard25; if so, it would differ from the case of Slovakia, where post-independence structural changes have generally been favorable (see Wyzan, 1998).
It is clear that the economy of Macedonia will need to be thoroughly restructured if the country is to move decisively in the direction of a developed market economy. Closer
relations with the EU – if not accession, at least a more favorable treatment for its agricultural and “sensitive sector” products – would certainly help. Interestingly, Macedonia seems to have little to lose from greater trade liberalization with the EU, since, for example, it lacks Slovenia’s advanced but not quite leading edge enterprises in the machinery and equipment sector.
25 One manner in which this might have been accomplished is through the processing and re-exporting of such Macedonian goods as wine and ajvar (a spicy sauce made from red peppers) by Slovenia and other more developed republics. For example, wine would be shipped to Slovenia in bulk form and bottled there.
Arguably even more important, especially in such a small country, would be FDI inflows on a large enough scale to remake from scratch Macedonia’s productive capacity.26 Before the outbreak of warfare in former Yugoslavia in late March 1999, FDI seemed to be picking up, reaching $118 million in 1999, after being negligible in previous years. The government had also been hoping for a substantial inflow of FDI from Taiwan, with which it established diplomatic relations in late January 1999 (the figure of $200 million over four years was frequently mentioned). The heightened instability in the region seems almost certain to reduce FDI inflows in the medium term relative to what they otherwise would have been. Nonetheless, it is encouraging that large deals involving Greek investors in petroleum refining and transport and thermal electricity generation seem to be in the works (MILS news agency, May 6, 1999).
26 See Eichengreen and Kohl (1998) for arguments in favor of the importance of FDI to a successful transition in CEE and a review of the literature on this theme.
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