Transforming trade and payments in transition economies — the regional dimension

Abstract The paper examines the desirability, on economic fundamentals, for the transition economies (TEs) to replace their inherited integration format with another regional compact while awaiting merger into the European Union (EU). Many reasons were invoked to negate this. On economic fundamentals too much faith was placed in the predictability and theoretical strength of the gravity model for predicting normal bilateral trade flows and in the seamless merger of TEs in global trade and financial networks to offset any intial transformational imbalances. Opportunities for regional cooperation have not been seized largely for political and security rather than sound economic reasons. This is a suboptimal poicy choice not only in governing the transition but also in governing the processes for eventually playing a constructive role in the EU's single market.