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Trade growth in a heterogeneous firm model: Evidence from South Eastern Europe

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  • d'Artis Kancs

    (London School of Economics and Catholic University of Leuven)

Abstract

In 2007 a Free Trade Area (BFTA) will be created in the Balkans. In this paper we study the potential impact of BFTA on trade growth in the SEE. Given that welfare impacts associated with trade growth depend on the growth channels, more goods and varieties exported or at higher price or higher volume of goods and varieties are exported, in this paper we investigate the structure of integration-induced export growth in the Balkans. The empirical implementation of our analysis is complicated by the fact that firm-level trade data is not available for the SEE economies. In order to cope with this data paucity, we adopt a heterogeneous firm framework, which allows us to decompose the aggregate trade growth in two parts: the intensive margin of trade and the extensive margin of trade using only aggregate trade data. The empirical findings of our study suggest that the BFTA would primarily trigger trade growth through a growing number of exported goods (the extensive margin of trade).Thus, the actual welfare gains from trade growth in the Balkans might be larger than predicted by previous trade studies. We also found that a variable trade cost reduction would lead to higher export growth rates compared to a fixed trade cost reduction. These results allow us to draw detailed policy conclusions.

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Bibliographic Info

Paper provided by Asociación Española de Economía y Finanzas Internacionales in its series Working Papers with number 07-09.

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Length: 37 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:aee:wpaper:0709

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Keywords: Balkans; export growth; regional integration; trade costs;

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References

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  1. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  2. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September.
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  7. Arellano, M. & Honore, B., 2000. "Panel Data Models: Some Recent Developments," Papers 0016, Centro de Estudios Monetarios Y Financieros-.
  8. Timothy J. Kehoe & Kim J. Ruhl, 2009. "How important is the new goods margin in international trade?," Staff Report 324, Federal Reserve Bank of Minneapolis.
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  15. Thierry Mayer & Keith Head, 2003. "The Empirics of Agglomeration and Trade," Working Papers 2003-15, CEPII research center.
  16. repec:wii:bpaper:bowp:014 is not listed on IDEAS
  17. Eaton, Jonathan & Kortum, Samuel S & Kramarz, Francis, 2009. "An Anatomy of International Trade: Evidence from French Firms," CEPR Discussion Papers 7111, C.E.P.R. Discussion Papers.
  18. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
  19. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2006. "Trading Partners and Trading Volumes," DEGIT Conference Papers c011_022, DEGIT, Dynamics, Economic Growth, and International Trade.
  20. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
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Citations

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Cited by:
  1. d’Artis Kancs, 2009. "Structural Estimation of Variety Gains from Trade Integration in Asia," Working Papers 2009.7, International Network for Economic Research - INFER.
  2. James Anderson, 2001. "Migration, FDI, and the Margins of Trade," EERI Research Paper Series EERI_RP_2001_05, Economics and Econometrics Research Institute (EERI), Brussels.
  3. Pavel Ciaian & d'Artis Kancs & Jan Pokrivcak, 2008. "Comparative Advantages, Transaction Costs and Factor Content of Agricultural Trade: Empirical Evidence from the CEE," EERI Research Paper Series EERI_RP_2008_03, Economics and Econometrics Research Institute (EERI), Brussels.
  4. d’Artis Kancs & Pavel Ciaian, 2009. "The Factor Content of Heterogeneous Firm Trade," Working Papers 2009.6, International Network for Economic Research - INFER.
  5. Rosa Capolupo, 2012. "Economic Transition and Regional Growth: The Case of Albania and Comparator SEECs," Transition Studies Review, Springer, vol. 18(3), pages 529-549, March.
  6. d'Artis Kancs & Pavel Ciaian, 2008. "Factor Content of Agricultural Trade," EERI Research Paper Series EERI_RP_2008_05, Economics and Econometrics Research Institute (EERI), Brussels.

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