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Volume and Comparative Advantage in East-West Trade

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Author Info

  • Dieter Schumacher
  • Parvati Trübswetter

Abstract

The volume and commodity structure of EU trade with the transition countries in central and eastern Europe (CEECs) is estimated on the assumption that it will follow the pattern of trade among market economies. A gravity-type approach at the level of product groups is used, combining geography and factor-proportions theory of international trade. It is shown that there is still considerable potential for a further rise in East-West trade if the CEECs' national product is valued at purchasing power parities, instead of market exchange rates. Considering divergent income levels and distance between East and West, the EU's comparative advantages are in specialised-supplier, scale-intensive and science-based goods, whereas the CEECs' comparative advantages are in labour-intensive and resource-intensive goods. The intersectoral specialisation pattern will become "flatter" and the share of intra-industry trade will grow when the income differentials decrease.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.38519.de/dp223.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 223.

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Length: 28 p.
Date of creation: 2000
Date of revision:
Handle: RePEc:diw:diwwpp:dp223

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Related research

Keywords: East-West trade; gravity model; comparative advantages;

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References

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  1. Paul Brenton & Francesca Di Mauro, 1998. "Is There Any Potential in Trade in Sensitive Industrial Products Between the CEECs and the EU?," The World Economy, Wiley Blackwell, vol. 21(3), pages 285-304, 05.
  2. Schumacher, D., 1995. "Impact on German Trade of Increased Division of Labor with Eastern Europe," Papers 6, American Institute for Contemporary German Studies-.
  3. Jeffrey A. Frankel, 1992. "Is Japan Creating a Yen Bloc in East Asia and the Pacific?," NBER Working Papers 4050, National Bureau of Economic Research, Inc.
  4. Sandrine Cazes & Bruno Coquet & Frédéric Lerais, 1997. "Scénario pour un élargissement à l'Est de l'Union européenne," Économie rurale, Programme National Persée, vol. 240(1), pages 4-8.
  5. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
  6. Paul Brenton & Francesca Di Mauro & Matthias Lücke, 1999. "Economic Integration and FDI: An Empirical Analysis of Foreign Investment in the EU and in Central and Eastern Europe," Empirica, Springer, vol. 26(2), pages 95-121, June.
  7. Piazolo, Daniel, 1997. "Trade Integration between Eastern and Western Europe: Policies Follow the Market," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 12, pages 259-297.
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  9. Dieter Schumacher, 1992. "A note on the human capital intensity of EC trade," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 133, pages 3-19.
  10. 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.
  11. Wang, Zhen Kun & Winters, L. Alan, 1991. "The Trading Potential of Eastern Europe," CEPR Discussion Papers 610, C.E.P.R. Discussion Papers.
  12. Vittas, H. & Mauro, P., 1995. "Potential Trade with Core and Periphery: Industry Differences in Trade Patterns," Papers 10, American Institute for Contemporary German Studies-.
  13. 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.
  14. Wood, Adrian, 1995. "North-South Trade, Employment and Inequality: Changing Fortunes in a Skill-Driven World," OUP Catalogue, Oxford University Press, number 9780198290155, Octomber.
  15. Keith Head & John Ries, 1998. "Immigration and Trade Creation: Econometric Evidence from Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 47-62, February.
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Citations

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Cited by:
  1. Timo Mitze, 2009. "Endogeneity in Panel Data Models with Time-Varying and Time-Fixed Regressors: To IV or not IV?," Ruhr Economic Papers 0083, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  2. Timo Mitze & Björn Alecke & Gerhard Untiedt, 2009. "Trade-FDI Linkages in a System of Gravity Equations for German Regional Data," Ruhr Economic Papers 0084, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  3. Mitze, Timo, 2010. "Estimating Gravity Models of International Trade with Correlated Time-Fixed Regressors: To IV or not IV?," MPRA Paper 23540, University Library of Munich, Germany.
  4. 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.

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