Recent events, historical evidence and geographical proximity suggest that the six EFTAns and twelve Central and East European countries (CEECs) are natural trading partners. This paper evaluates this suggestion by estimating the potential for EFTA-CEEC trade using the gravity model of Wang and Winters (1991). The findings show that even at 1989 CEEC income levels, EFTA-CEEC trade should have been four times greater than it was. Thus the CEEC markets should have been as important to Austria, Iceland and Switzerland as were the EFTA markets. A second estimation is carried out assuming that CEECs' incomes catch up to 70% of the EC's by 2005, 2010 and 2020. In this scenario, EFTA-CEEC trade grows at double digit rates for decades, finally attaining a level where CEEC markets account for almost a fifth of EFTA members' exports to all of Europe.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
853.
Find related papers by JEL classification: F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General F14 - International Economics - - Trade - - - Country and Industry Studies of Trade F15 - International Economics - - Trade - - - Economic Integration F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
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