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European Trade Integration in the Baltic Sea Region - A Gravity Model Based Analysis

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Author Info
Paas, Tiiu
Tafenau, Egle

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Abstract

The paper explores regional trade integration of the countries involved in the EU eastward enlargement (EU-25) processes distinguishing the possible regional trade clusters within EU-25 that may support integration of the EU-15 and the new member states. We examine whether the gravity equation based on the new trade theory describes trade integration of the EU-25 countries, and whether the results of a gravity model based analysis may be different in the case of the Baltic Sea region (BSR). The gravity models are estimated based on panel data for the years 1993 to 2002. The results of our analysis indicate that the BSR is forming an exception within EU-25. The BSR trade cannot be explained as much with New Trade Theories as in the case of the whole EU. The BSR countries have different factor endowments and the intensive trade relations between the BSR countries are mainly based on comparative advantages.

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Publisher Info
Paper provided by Hamburg Institute of International Economics in its series Discussion Paper Series with number 26263.

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Date of creation: 2005
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Handle: RePEc:ags:hiiedp:26263

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Related research
Keywords: gravity models; international trade; regional integration; Baltic Sea region; International Relations/Trade; F15; R1; C5;

References listed on IDEAS
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  1. Tiiu Paas & Egle Tafenau, 2004. "The Baltic Sea Region’s Role in Trade Integration," University of Tartu - Faculty of Economics and Business Administration, in: Modelling the Economies of the Baltic Sea Region, volume 17, chapter 3, pages 92-115 Faculty of Economics and Business Administration, University of Tartu (Estonia). [Downloadable!]
  2. Hummels, D. & Levinsohn, J., 1993. "Monopolistic Competition and International Trade: Reconsidering the Evidence," Working Papers 339, Research Seminar in International Economics, University of Michigan.
    Other versions:
  3. Oguledo, Victor Iwuagwu & MacPhee, Craig R, 1994. "Gravity Models: A Reformulation and an Application to Discriminatory Trade Arrangements," Applied Economics, Taylor and Francis Journals, vol. 26(2), pages 107-20, February.
  4. Peter Egger & Michael Pfaffermayr, 2003. "The proper panel econometric specification of the gravity equation: A three-way model with bilateral interaction effects," Empirical Economics, Springer, vol. 28(3), pages 571-580, July. [Downloadable!] (restricted)
  5. Baltagi, Badi H. & Egger, Peter & Pfaffermayr, Michael, 2003. "A generalized design for bilateral trade flow models," Economics Letters, Elsevier, vol. 80(3), pages 391-397, September. [Downloadable!] (restricted)
  6. Claus-Friedrich Laaser & Klaus Schrader, 2002. "European Integration and Changing Trade Patterns: The Case of the Baltic States," Kiel Working Papers 1088, Kiel Institute for the World Economy. [Downloadable!]
  7. Sanso, Marcos & Cuairan, Rogelio & Sanz, Fernando, 1993. "Bilateral Trade Flows, the Gravity Equation, and Functional Form," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 266-75, May. [Downloadable!] (restricted)
  8. Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann D., 2003. "Augmented gravity model: An empirical application to Mercosur- European trade flows," International Trade 0309019, EconWPA. [Downloadable!]
  9. Peter Egger, . "A Note on the Proper Econometric Specification of the Gravity Equation," WIFO Working Papers 108, WIFO. [Downloadable!]
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  10. Peter Egger, . "An Econometric View on the Estimation of Gravity Models and the Calculation of Trade Potentials," WIFO Working Papers 141, WIFO. [Downloadable!]
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  11. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June. [Downloadable!] (restricted)
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  12. Barry Eichengreen & Douglas A. Irwin, 1996. "The Role of History in Bilateral Trade Flows," NBER Working Papers 5565, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Laszlo Matyas, 1997. "Proper Econometric Specification of the Gravity Model," The World Economy, Blackwell Publishing, vol. 20(3), pages 363-368, 05. [Downloadable!] (restricted)
  14. Soloaga, Isidro & Alan Wintersb, L., 2001. "Regionalism in the nineties: what effect on trade?," The North American Journal of Economics and Finance, Elsevier, vol. 12(1), pages 1-29, March. [Downloadable!] (restricted)
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