Book review, Teaching/Communication/Extension/Profession,

Stefan, Bojnec

English

Research Papers in Economics

123
Studies in Agricultural Economics No. 105. p. 123-128. (2006)
Imre Fertő: Agri-food trade between Hungary and the EU1
Štefan Bojnec2
This is one of the ﬁ  rst books that is based on in-depth analytical research and which, 
in a scientiﬁ  c and comprehensive way, analyzes agri-food trade between East and West. In 
the wake of the now defunct Soviet era COMECON trade organization, it also deals with 
the post-Soviet implications for European Union (EU) integration. More speciﬁ  cally, the 
book represents ground-breaking in-depth analytical research work on agri-food trade 
between Hungary (a former COMECON socialist country) and its attempt at integrating 
with the West, and the EU-15. The analyzed period between 1992 and 1998 focuses on 
the opportunities stipulated by the 1991 Association Agreement between Hungary and the 
EU-15. During the transition period, the Hungarian food sector was signiﬁ  cantly restructu-
red through foreign direct investment, a likely driving force toward increasing the agri-food 
sector’s international competitiveness. For Hungary, then an EU cnadidate, the year 1998 
marked the end of the transition period and was followed by a more intense adjustment 
period. Endowed with excellent trade theory knowledge, the book’s author, Imre Fertő, 
delves into empirical trade theory, methodology and approaches for in-depth investigation of 
trade patterns. Fertő does this through continual market share analysis, and through revealing 
comparative trade advantages, and discussing intra-industry trade. The author illustrates its 
further decomposition on horizontal and vertical intra-industry trade through explanations 
touching on speciﬁ  c countries’ determinants in intra-industry trade. The book is rich in agri-
food trade theory and empirical trade analysis.
Therefore, the book thoroughly examines the agri-food trade pattern between Hun-
gary and the EU-15 during the transition period’s initial stage encompassing pre-enlarge-
ment adjustments towards EU membership. The author employed various theoretical trade 
concepts and tested them empirically using as yardsticks various trade shares, comparative 
trade advantages, intra-industry trade, and some other trade methods. Using statistical and 
econometric methods, the results are investigated in relation to various partial or multiple 
determinants in terms of their changes. Fertő’s book presents a concise combination of 
theory, methodology, employed data, and empirical results along with their their policy 
implications.
The book has eight chapters. First is an introduction which comprises opening 
statements, theoretical background, and concepts to explain trade, particularly in agricultural 
and food products. Both traditional and emerging new trade theories are utilized to explain 
agricultural trade. The ﬁ  rst chapter also presents research questions and explains the book’s 
structure. 
In the second chapter Fertő looks back on the Hungarian economy and agriculture 
during the nineties to analyse Hungarian agri-food trade with the EU-15. The focus is on 
main economic indicators, and trade policy environment. Also examined are the economic 
importance of agriculture and the food industry as well as government support for agriculture. 
The chapter also studies Hungarian agriculture’s competitiveness and the economic 
environment’s synthesis of changes. Among the main economic indicators analyzed are 
sectoral output and employment, earnings, unemployment, and productivity. Also examined 
are consumer and agricultural prices and trade terms. To further examine Hungary’s transition 
1  Budapest: Századvég, 2004. ISBN: 963921185-0, 257 pages.
2  University of Primorska, Koper, Slovenia124
Imre Fertő: Agri-food trade between Hungary and the EU
to a market economy, the author focuses on foreign exchange rates and other main economic 
indicators and their potential impact on the agricultural and food sectors as well as on trade 
patterns. To illustrate the extent of changes in trade policy the writer gives special attention 
to Hungary’s Association Agreement with the EU-15 and the subsequent agricultural conces-
sions. Also discussed are concessions stemming from the European Free Trade Agreement, the 
Central European Free Trade Agreement, and the Uruguay Round Agreement. These policy 
and trade changes are reﬂ  ected in the level and size of government support for agriculture, 
measured by the producer subsidy equivalents. The authors uses calculations gathered by 
the Organization for Ecnoomic Cooperation and Development (OECD) to study Hungarian 
individual arable crops and livestock. The competitiveness section on Hungarian agriculture 
actually deﬁ  nes competitiveness and presents different concepts and methodologies for 
measuring national, industrial, and corporate competitiveness as well as presenting studies 
and facts on the evolution of Hungarian agricultural competitiveness. Chapter two provides 
a context for analyzing Hungarian agri-food trade with the EU-15, underlining changes in 
international trade, macro-economics and in various sectors and the changes’ subsequent 
impact on the agri-food sector and on agri-food trade.
The third chapter analyzes Hungarian agricultural trade with the EU-15. The analysis 
is conducted for total Hungarian agricultural trade in terms of main product groups, geogra-
phical distribution and individual EU-15 member states. Besides analyzing Hungarian agri-
food trade structures with the EU-15, Fertő uses Herﬁ  ndahl-Hirschman indices to analyze 
trade similarity and trade concentration 
Employing a constant market share analysis, the fourth chapter evaluates Hungarian 
agricultural trade sources with the EU-15. The author summarizes the various constant market 
share models and calculation procedures. The empirical results are based on one and two-stage 
constant market share models in terms of product groups and in terms of the EU-15 member 
states. The results using the constant market share models are conducted ﬁ  rst for Hungarian 
exports and then imports, and then separately for EU-15 exports and later imports. Applied 
are the alternative speciﬁ  cation and alternative desegregation procedures. At the ﬁ  rst level 
the constant market share model is decomposed by market size effect, market composition 
effect, competitive effect, changes in export/imports, structural effect, residual effect, and 
second-order effect. At the second level the constant market share model is decomposed by 
growth effect, market size effect, pure residual effect, static structural residual, pure second-
order effect and dynamic structural residual. To test the results’ stability, a sensitivity analysis 
is conducted using varying assumptions that consider, respectively, variations due to the 
commodity aggregation, variations due to end of year changes, and variations due to changes 
in reference market. Constant market share analysis indicates that Hungarian competitiveness 
in agri-food trade with the EU-15 deteriorated.
The ﬁ  fth chapter reveals comparative advantageous measures for Hungarian agri-
culture. This chapter further develops theories and methodologies for measuring revealed 
comparative advantage. These theories and methodologies were initially formulated by Bela 
Balassa and various other authors. The book’s author is cognizant of methodological issues 
for measuring revealed comparative advantage and new trends in literature on methodological 
issues related to measuring. Fertő is also familiar with empirical models and procedures for 
measuring revealed comparative advantage. This is tested and further developed in the form 
of alternative approaches for measuring revealed comparative advantage as it pertains to 
Hungarian agriculture. Fertő carried out different consistency tests and stability measures 125
Imre Fertő: Agri-food trade between Hungary and the EU
for calculated bilateral revealed comparative advantage measures. Other than Hugarian 
argriculture’s bilateral revealed comparative advantages, Fertő also analyzed regional and 
global revealed comparative advantages in Hungarian agriculture by employing the three 
different benchmark markets as comparisons. As with bilateral comparative advantages, and 
also with regional and global revealed comparative advantages, consistency is also evaluated 
through testing (cardinal test: correlation coefﬁ  cients of paired indices, ordinal test: rank 
correlation coefﬁ  cients of paired indices, and dichotomous test: shares of matching indices). 
In order to form conclusions and to examine the implications for Hungarian agriculture 
and the food sector, tests are also done to measure stability. The stability testing entails the 
following: correlation indices’ coefﬁ  cients, empirical distribution of indices, the Jarque-Bera 
test, and changes in trade structure and indices’ transition probabilities. Revealed comparative 
advantage indices for the transition period indicate that Hungary experienced comparative 
export and trade advantagess in livestock and arable crop products, but otherwise lost ground. 
The approaches used in the book are not only relevant for other countries in the region and in 
general go beyond analysis of agricultural and food sector comparative advantages.
The sixth chapter is devoted to theoretical and methodological issues for measuring 
intra-industry trade. Also presented in this chapter is the intra-industry trade concept coupled 
with its most common measures and various approaches for measuring it. Stress is on measu-
ring static intra-industry trade and its decomposition on vertical and horizontal components. 
Measuring static intra-industry trade entails the trade imbalance problem, the categorical 
bias and the geographical bias as a pssobile means for improvement when measuring the 
degree and level of intra-industry trade. Besides measuring static intra-industry trade, plus 
the degree and level of intra-industry trade and their vertical and horizontal components, also 
described are recent advances in the concept of dynamic or marginal intra-industry trade with 
associate adjustments costs. 
The seventh chapter also discusses intra-industry trade, but in a applied empirical 
manner. Here the author empirically analyzes intra-industry trade between Hungary and the 
EU-15 in agri-food products. As an introduction to empirical calculations of intra-industry 
trade patterns between Hungary and the EU-15 in agri-food products, Fertő provides an 
overview of the empirical studies dealing with intra-industry trade and hypothesis testing 
for determinants of intra-industry trade in agri-food products. Following this, intra-industry 
trade patterns between Hungary and the EU-15 in agri-food products are presented. The static 
traditional Grubel-Lloyd intra-industry trade index and other methods of its decomposition 
on horizontal and vertical intra-industry trade is provided as is dynamic marginal intra-
industry trade with associated adjustment costs. Also evaluated are categorical bias and 
ranking of the EU-15 in terms of their intra-industry trade level in agri-food products with 
Hungary. During the 1990s intra-industry trade in agri-food products between Hungary and 
the EU-15 was found to be weak indicating low external integration of the Hungarian agri-
food sector with the EU-15 markets. This is because in the early 90s the EU-15 market 
for Hungary was in its infancy following the stipulated Association Agreement. Over the 
examined period an increase in intra-industry trade in agri-food products between Hungary 
and the EU-15 indicates an increase in external market integration. This trend is consistent 
with trade liberalization efforts and Hungarian agri-food sector restructuring. It also meshes 
with the economic growth which is behind the increase in bilateral matched trade ﬂ  ow in 
similar products. More in-depth results indicate that this was not a uniform pattern as the 
results vary by product group. This also varies for individual EU-15 member states. In 
agri-food products different bilateral trade integration patterns between Hungary and the 126
Imre Fertő: Agri-food trade between Hungary and the EU
EU-15 suggest that the transition process remained incomplete. Also restructuring by diffe-
rent product categories and different business and trade relations between Hungary and the 
individual EU-15 countries could be due to a number of economic and non economic factors. 
These include transport costs for distant market outlets, common borders, and knowledge 
of foreign languages Also noteworthy is that matched intra-industry trade is dominated by 
vertically differentiated products where the difference between export and import unit value 
is greater. Inter-industry trade’s prevalence and the low extent of intra-industry trade in agri-
food products are also conﬁ  rmed by marginal intra-industry trade indices. For marginal intra-
industry trade vertical intra-industry trade is again prevalent. Inter-industry trade prevalence 
and vertical intra-industry trade are more likely to be associated with higher adjustment 
costs necessary for restructuring and reallocation of production factors between industries or 
within the same industry. The authors contends that for matched two-way intra-industry trade 
vertical intra-industry’s dominance implies that the Hugarian and EU-15 agri-food sectors 
have been developing in a complementary way which is reducing adjustment costs. Moreover, 
the obtained empirical results for various types of intra-industry trade as a dependent variable 
are tested in the regression framework employing the set of country-speciﬁ  c determinants 
or explanatory variables. The level of intra-industry trade is found as a more appropriate 
dependent variable than the degree of intra-industry trade. The country-speciﬁ  c determinants 
of intra-industry trade are tested to explain results obtained for total intra-industry trade, for 
horizontal and vertical intra-industry trade, and for marginal intra-industry trade. Among 
things considered for country-speciﬁ  c determinants or explanatory variables of intra-industry 
trade are: tests and differences in per capita income measured by per capita gross-domestic 
product between Hungary and its EU-15 trading partners, differences between partner 
nations’ sizes, market size, and transportation costs. The national determinants’ results 
for Hungarian intra-industry trade in agri-food products with the EU-15 imply that their 
country-speciﬁ  c determinants differ for intra-industry trade types of horizontal and vertical 
components.
The  ﬁ   nal chapter summarizes the empirical analysis’s main results and draws 
conclusions that include main ﬁ  ndings, plus implications and directions for future research. 
The last chapter contains the main ﬁ  ndings for the each chapter. In this section there is also 
a comparitive analysis of Hungarian agri-food competitiveness by combining all applied 
approaches: constant market shares, revealed comparative advantage, static Grubel-Lloyd 
intra-industry trade index and dynamic marginal intra-industry trade index. The comparison 
of the results is presented by two-digit Standard International Trade Classiﬁ  cation groups. 
In another part there are also country-speciﬁ  c determinants for Hungarian agri-food intra-
industry trade using regression framework. Fertő also outlines various weaknesses in 
his research which are explicitly designed as a guide for future research. These are trade 
distortions caused by government policies and intervention that affect different trade 
measures, comparative advantage, competitiveness, and trade types. Other than national 
factors in the pertinent literature, hypotheses are often tested using simultaneously both 
country and industry-speciﬁ  c factors explaining the various types of intra-industry trade. 
Due to lack of data, industry-speciﬁ  c factors in regression analysis are omitted. Finally, 
another goal for future research involves trade dyniamics analysis using marginal intra-
industry trade measures and updated analysis. 127
Imre Fertő: Agri-food trade between Hungary and the EU
The book provides extensive references. These encompass general trade literature, 
relevant references for agri-food trade (still rather rare) plus references on agricultural and 
food transition and European integration. In the Appendix is a more detailed explanation 
and list of agri-food commodities than in the empirical analysis. Also included are more 
detailed results for bilateral, regional and global revealed comparative advantage indices for 
Hungarian agri-food products. Following that there is the degree of horizontal and vertical 
intra-industry trade and the Nilsson’s measure for the level of horizontal and vertical intra-
industry trade in agri-food products between Hungary and the EU-15. Finally, there are also 
descriptive statistics for variables in regressions for dependent variable (total intra-industry 
trade, horizontal and vertical intra-industry trade, respectively) and for explanatory country-
speciﬁ  c variables.
The book offers more than a mere understanding of agri-food trade between Hungary 
and the EU-15. Fertő’s book is well illustrated with trade literature overviews, theories, 
methodologies and different approaches to analyze patterns in trade structures, revealed 
comparative advantages, intra-industry trade and trade types. The author goes even further 
as he has developed several applications of different theories, methodologies and approaches 
for the real trade situation and trade analysis for Hungarian agri-food trade with the EU-15. 
Therefore, this work is becoming the key reference book for research, post-graduate and 
study material to examine trade, agri-food trade, transition and EU trade related integration 
processes in Hungary and the EU-15. This also holds true for studying other countries more 
closely associated with the EU, and the most recent new member states (including Hungary), 
and for EU candidate countries. Possible updates for the included research can provide 
comparisons for transition and pre-enlargement trade patterns. These comparisons can 
also deal with the most recent post-EU-accession developments which are associated with 
ﬁ  nalizing the Hungarian agri-food transition process, restructuring, the policy changes and 
trade shifts toward the borderless Single European Market. So far such post-EU-accession 
trade study is not yet available for any new EU member country. In the coming years this is 
likely an area for trade research and this particular book offers an excellent methodological 
and empirical background for such studies. Therefore, the book’s strength is its innovative 
approaches for studying trade structures, revealed comparative trade advantages, intra-
industry trade, and trade types. Fertő’s work is pertinent for post-graduate education, in-
depth trade research, and policy purposes. It is for those who are interested in static and 
dynamic trade analysis, agri-food trade and their subsequent relationship with agri-food 
trade and sectoral transition in Hungary and in other Central and Eastern European countries. 
The work focuses on transition related issues between East and West, and to adjustments 
and EU membership. For this reason it is also recommended for Western scholars in this 
ﬁ  eld of study. This applies for those studying general trade, agricultural and food trade, 
transition economics and European integration.

Imre FertÅ‘: Agri-food trade between Hungary and the EU

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