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Europe’s Internal Market at Fifty: Over the Hill?

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  • Straathof, B.
  • Linders, G.J.M.

    (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)

Abstract

For more than half a century, members of the European Union (EU) have pursued policies aimed at reducing the cost of cross-border transactions. Using a closed-form solution for the non-linear gravity system of Anderson and Van Wincoop (2003) we find that Internal Market policies have created trade between EU members, while diversion of trade with non members has been limited. Around 1995, 18 percent of total trade by EU15 countries can be attributed to the Internal Market. In the second half of the 1990’s the European advantage started to deteriorate relative to other trade flows: in 2005 the contribution of the Internal Market was just 9 percent. Most enlargements of the EU have had a positive impact on trade.

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Bibliographic Info

Paper provided by VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics in its series Serie Research Memoranda with number 0055.

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Date of creation: 2009
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Handle: RePEc:dgr:vuarem:2009-55

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Web page: http://www.feweb.vu.nl

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Keywords: European Union; gravity equation; trade diversion;

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Cited by:
  1. Alexandra Hudson & Bas Straathof, 2010. "The Declining Impact of Exchange Rate Volatility on Trade," De Economist, Springer, vol. 158(4), pages 361-372, November.

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