European Economic Review 14 (1980) 45-59. 0 North-Holland Publishing Company ECONOMIC DETERMINANTS OF SOVIET FOREIGN TRADE WITH EASTERN EUROPE Joseph PELZMAN* The George Washington University, Washingyon, DC 20052, USA Received May 1978, final version received November 1979 Using a cross-sectionally correlated and time-wise autoregressive pooling procedure, we have obtained long-run estimates of export and import elasticities of Soviet-East European bilateral trade with respect to supply, demand and trade resistance factors. Our results indicate that Soviet exports to East Europe during 1963-1973 was, for most product groups, determined by demand conditions found in the East European partner countries while Soviet imports from Eastern Europe, for the same period, was for most product groups determined by East European supplies. 1. Introduction ‘There are a number of differing hypotheses concerning tllc determination of Soviet foreign trade with Eastern Europe.’ The popular Western interpretation2 argues that Soviet foreign trade is determined, to a large extent, by the relative shortages and surpluses revealed in the material balance. This material balance, measured in physical quantities, equates the supply of a particular commodity with the proposed demand existing among intermediary and final users. Imports: as suggested by the traditional interpretation, are planned when the material balance shows a deficit. Exports, on the other hand, are assumed to be planned in the event the balance shows a surplus. This material balances approach is, theoretically, designed to allow tk development and execution of a consistent domestic and foreign trade plan. *I am grateful to H. Glejser and an anonymous referee for their helpful comments on an earlier draft of this paper. The author alone is responsible for remaining errors and controversial interpretations. ‘See, Wiles (1968), Brown and Neuberger (1968), Boltho (1971), and Holzman (1974). We are concerned with the following East European countries: Bulgaria, Czechoslovakia. East Germany, Hungary, Poland and Romania. ‘For an excellent exposition see Boltho (1971, p. 52).