Inefficiency and Lack of Transparency in GDR Foreign Trade

East German foreign trade was one of the least productive sectors of the economy. Its institutional organization, based on the foreign trade monopoly, isolated the economy from the international markets. East German firms traded with their foreign trade firms, but not with their suppliers and clients. Its theoretical foundation was weak. Ricardian comparative cost was its starting point. The insistence on the labor theory of value, from which Ricardo deviated in this context, made it difficult to calculate comparative cost advantage and the gains from trade. In addition, a price equalization scheme obscured specialization possibilities and thus inhibited rational foreign trade planning. Trade was executed on two separate markets, with the socialist world and with the non-socialist world. Pricing idiosyncrasies with multiple effective exchange rates made it impossible to obtain consistent aggregate statistics. Finally, foreign trade performance was camouflaged and kept secret in order to hide the true situation from the outside world.