Impact of hard and soft infrastructure: evidence from North Africa and CECs

The authors analyse how a set of slow-moving determinants affect trade between the European Union, on the one hand, and Central and Eastern European and African countries, on the other hand, over the period 2005–12. They focus on two sets of slow-moving determinants, Doing Business institutions and logistical infrastructure as well as embassies and Ambassadors. Trade is disentangled for three types of goods: primary goods, parts and components, and capital goods. They show the beneficial effects of soft and hard infrastructure, compare the latter with the benefit of opening an embassy, compute the extra trade of a move towards better trade facilitation and Doing Business indicators, and find that a huge part of the missing bilateral trade fixed effect of North African countries is accounted for by soft and hard infrastructure, and that diplomatic activity is also a powerful driver of regional integration.