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This paper proposes a two blocks and three regions economic geography modelthat can account for the most salient stylized facts experienced by EasternEuropean transition economies during the period 1990 2005. In contrast to theexisting literature, which has favored technological explanations, tradeliberalization is the only driving force. The model correctly predicts that inthe first half of the period, trade liberalization led to divergence in GDP percapita, both between the West and the East and within the East. Consistent withthe data, in the second half of the period, this process was reversed andconvergence became the dominant force.

Behind the Eastern-Western European convergence path: the role of geography and trade liberalization