Trade effects of the Europe agreements: A theory-based gravity approach
AbstractIn this paper, we develop a new version of a theory-based gravity equation to properly account for the relative price indices initially proposed by Anderson and van Wincoop (2003). The partially time-varying character of our multilateral resistance variables overcomes the bias present in earlier studies that solely rely on country or country pair fixed effects. Applying the augmented gravity equation to the process of European Union (EU) integration during the 1990s, we find robust evidence that the Free Trade Agreements (FTAs) with the Central and Eastern European Countries (CEECs) have substantially increased intra-group trade, in the case of the Czech and Slovak Republic and Slovenia at the expense of the Rest of the World (ROW). Since decreasing multilateral trade resistance negatively influences a country's bilateral imports but may be positively correlated with a bilateral FTA, earlier East-West studies, which ignored the relative price term's time-varying character, tend to be downward biased. Indeed, our results indicate that once we correct for the omitted variable bias, the FTAs with the CEECs created 7 to 20% more new trade compared with the scenario where only time-invariant country pair effects were included.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.
Volume (Year): 18 (2009)
Issue (Month): 1 ()
Contact details of provider:
Web page: http://www.tandfonline.com/RJTE20
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Oxana Babecká Kucharčuková & Jan Babecký & Martin Raiser, 2012. "Gravity Approach for Modelling International Trade in South-Eastern Europe and the Commonwealth of Independent States: The Role of Geography, Policy and Institutions," Open Economies Review, Springer, vol. 23(2), pages 277-301, April.
- Oxana Babecka Kucharcukova & Jan Babecky & Martin Raiser, 2010. "A Gravity Approach to Modelling International Trade in South-Eastern Europe and the Commonwealth of Independent States: The Role of Geography, Policy and Institutions," Working Papers 2010/04, Czech National Bank, Research Department.
- Curran, Louise & Zignago, Soledad, 2012. "EU enlargement and the evolution of European production networks," Research in International Business and Finance, Elsevier, vol. 26(2), pages 240-257.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.