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On the Bilateral Trade Effects of Free Trade Agreements between the EU-15 and the CEEC-4 Countries

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Author Info
Guglielmo Maria Caporale ()
Christophe Rault ()
Robert Sova ()
Ana Maria Sova ()

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Abstract

The expansion of regionalism has spawned an extensive theoretical literature analysing the effects of Free Trade Agreements (FTAs) on trade flows. In this paper we focus on FTAs (also called European agreements) between the European Union (EU-15) and the Central and Eastern European countries (CEEC-4, i.e. Bulgaria, Hungary, Poland and Romania ) and model their effects on trade flows by treating the agreement variable as endogenous. Our theoretical framework is the gravity model, and the econometric method used to isolate and eliminate the potential endogeneity bias of the agreement variable is the fixed effect vector decomposition (FEVD) technique. Our estimation results indicate a positive and significant impact of FTAs on trade flows. This finding is robust to the inclusion in the sample of a group of control countries (specifically Belarus, the Russian Federation and Ukraine) that did not sign an FTA. Besides, we show that trade growth after the FTA agreement with the EU was signed exceeded trade growth of the control group of countries which did not become members.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2419.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2419

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Related research
Keywords: regionalisation; European integration; panel data methods;

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Find related papers by JEL classification:
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F15 - International Economics - - Trade - - - Economic Integration

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Christophe RAULT & Ana Maria SOVA & Robert SOVA, 2007. "The Endogeneity of Association Agreements and their Impact on Trade for Eastern Countries: Empirical Evidence for Romania," William Davidson Institute Working Papers Series wp868, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  2. Christophe Rault & Robert Sova & Ana Maria Sova, 2008. "Modeling International Trade Flows between CEEC and OECD Countries," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  3. de Melo, Jaime & Panagariya, Arvind & Rodrik, Dani, 1993. "The new regionalism : a country perspective," Policy Research Working Paper Series 1094, The World Bank. [Downloadable!]
    Other versions:
  4. Bhagwati, Jagdish & Panagariya, Arvind, 1996. "The Theory of Preferential Trade Agreements: Historical Evolution and Current Trends," American Economic Review, American Economic Association, vol. 86(2), pages 82-87, May. [Downloadable!] (restricted)
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  6. Baier, Scott L. & Bergstrand, Jeffrey H., 2004. "Economic determinants of free trade agreements," Journal of International Economics, Elsevier, vol. 64(1), pages 29-63, October. [Downloadable!] (restricted)
  7. Christophe Rault & Robert Sova & Ana Maria Sova, 2007. "The Role of Association Agreements within European Union Enlargement to Central and Eastern European Countries," IZA Discussion Papers 2769, Institute for the Study of Labor (IZA). [Downloadable!]
  8. Céline CARRERE, 2003. "Revisiting the Effects of Regional Trading Agreements on trade flows with Proper Specification of the Gravity Model," Working Papers 200310, CERDI. [Downloadable!]
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    Other versions:
  11. Bergstrand, Jeffrey H, 1989. "The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 143-53, February. [Downloadable!] (restricted)
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  14. Fernandez, Raquel & Portes, Jonathan, 1998. "Returns to Regionalism: An Analysis of Nontraditional Gains from Regional Trade Agreements," World Bank Economic Review, Oxford University Press, vol. 12(2), pages 197-220, May.
  15. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March. [Downloadable!] (restricted)
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  16. 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)
  17. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-81, August. [Downloadable!] (restricted)
  18. Schiff, Maurice & Winters, L Alan, 1998. "Regional Integration as Diplomacy," World Bank Economic Review, Oxford University Press, vol. 12(2), pages 271-95, May.
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  19. Hausman, Jerry A. & Taylor, William E., 1981. "Panel data and unobservable individual effects," Journal of Econometrics, Elsevier, vol. 16(1), pages 155-155, May. [Downloadable!] (restricted)
  20. Harry G. Johnson, 1965. "An Economic Theory of Protectionism, Tariff Bargaining, and the Formation of Customs Unions," Journal of Political Economy, University of Chicago Press, vol. 73, pages 256. [Downloadable!] (restricted)
  21. Egger, Peter, 2000. "A note on the proper econometric specification of the gravity equation," Economics Letters, Elsevier, vol. 66(1), pages 25-31, January. [Downloadable!] (restricted)
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  22. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-98, November. [Downloadable!] (restricted)
  23. Peter Egger, 2002. "An Econometric View on the Estimation of Gravity Models and the Calculation of Trade Potentials," The World Economy, Blackwell Publishing, vol. 25(2), pages 297-312, 02. [Downloadable!] (restricted)
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  24. Frankel, Jeffrey A & Stein, Ernesto & Wei, Shang-Jin, 1996. "Regional Trading Arrangements: Natural or Supernatural," American Economic Review, American Economic Association, vol. 86(2), pages 52-56, May. [Downloadable!] (restricted)
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  25. Laszlo Matyas, 1997. "Proper Econometric Specification of the Gravity Model," The World Economy, Blackwell Publishing, vol. 20(3), pages 363-368, 05. [Downloadable!] (restricted)
  26. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March. [Downloadable!] (restricted)
  27. Jeffrey A. Frankel & Shang-Jin Wei, 1998. "Open Regionalism in a World of Continental Trade Blocs," IMF Working Papers 98/10, International Monetary Fund.
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  28. 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)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Mitze, Timo & Alecke, Björn & Untiedt, Gerhard, 2008. "Trade, FDI and Cross-Variable Linkages: A German (Macro-)Regional Perspective," MPRA Paper 12245, University Library of Munich, Germany. [Downloadable!]
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