diversion, andthusreduce tradeandinvestment. 106.Flowsofprivate direct foreign investment fromtheoldindustrial European countries tothenewmembers ontheperiphery arelikely toincrease iftheincomegrowth oftheECishigh. 107.Private direct fQreign flowsarealsolikely tQaccelerate tQthoseformer centrally planned countries thatwillbeabletorefQrmtheireconomies ~uffici~ntly quickly toattract suchinvestment Qnasignificant scaleinto ~ndustr~es thatcancQmpete internatiQnally. ~08.Mostprivate direct foreign investment isreinvestment QutofprQfits earned 1~thecountry inwhichinvestment takesplace. Investment doesnotcomefroma f~xed"pot". Itis.related totheactivities oftransnatiQnal corporations. which areconst~ntly grQwJ.ng. Capital flowsreflect theirincreasing capital accumulatJ.~n andnumbers. Thosedepend onthebUQyancy oftheglobal eCQnomy and thedomest~c POlicies ofindividual cQuntries. -32-E.Theimpactoftrading blocsonformercentrally planned economies 109.Thecentrally planned economies reduced theireconomic growth bynottaking advantage ofcomparative advantage. Byignoring worldprices, cutting themselves offfromtheglobalpooloftechnology andignoring therealcostsoffactors of production, theywerenotabletoallocate resources effectively ortoutilize them efficiently. 110.Theconsequent economic distortions haveledinrecentyearstoeconomic stagnation andlowlivingstandards, sothatsomecentrally planned countries are nowmoresimilar todeveloping thantoindustrial countries. Theynowwantto catchup.Goods,service andfactor markets havetoberebuiltifpricesaretobe usedinresource allocation andutilization. Majorshiftsinperceptions ofhow somemarkets -forexample, housing -mightoperate willbeneeded. Intheshort term,themostdifficult areatomanagewillbemacro-economic policy, whileinthe mediumterm,restructuring ofproduction willbeacentral concern. 111.Alltheformercentrally planned economies havebothadisadvantage andan advantage intheirlowtradelevels andlowpenetration ofthemarkets ofdeveloped marketeconomies. Experience suggests that,withappropriate policies, rapid exportgrowthwillbepossible. 112.MostoftheEastern European countries shouldbeabletoincrease their exports, asthesuccessful market-oriented countries havedone.IftheECturns inwardtofavouritslessdeveloped membercountries, however, theformercentrally planned European countries willhavedifficulty ingaining accesstotheir neighbouring markets. Itisforthisreasonthattheyareseeking most-favoured-nation treatment andmembership inGATT. Majorrecessions wouldalso makefordifficulties. Butarapidgrowthscenario, following fromthejoining of forcesbetween thecapital andhighlyskilled labourofEuropean countries, is feasible. F.Theimpactoftrading blocsondeveloping countries 113.Theimportance ofdeveloped market economy markets fortherapidly growing exportsofmanufactures fromdeveloping countries isquiteclear. Developing countries feelthreatened bysuggestions formoreinward-looking trading arrangements withdeveloped market economies. Market accesstoEFTAandEC countries, NorthAmerica andJapanarecritical ifthedeveloping countries areto beenabled todiversify geographically bydestination andproduct andtomovefrom interindustry tointra-industry trade. Japanisaccelerating imports from developing countries. Thereisroominmanyproduct markets forbothcompeting withestablished exporters andincreasing marketpenetration. 114.Thescaleofmarkets indeveloped market economies isnot,however, infinite. Ifmarkets arenotallocated byprice/quality criteria onanon-discriminatory basisbutratheronpolitical grounds, theopenmultilateral systemwillwinddown andsowilltheprogression ofexports fromlow-skilled labour-intensive to higher-skilled andmoretechnology andcapital-intensive production. If recessions, severepricefluctuations, globalinflationary episodes orother macro-economic mismanagement emerge, export growthwilldecline, asitalwayshas inthepast.Ifdeveloped market economies retreat fromtradecreation totrade diversion, worldgrowthwillslowandsowillexports. -33-115.Thedeveloped market economies mustrestructure theiroutput tomakeroomfo
**Analysis**
The text appears to be discussing the economic aspects of trading blocs, their impact on various countries, and the need for restructuring and international cooperation. It mentions specific countries and economic indicators, highlighting the importance of trade, investment, and market access. The text also touches on the potential benefits and challenges of trading blocs, particularly for developing countries.

**Category**
International trade, Economic development