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Hub-and-Spoke or Else? Free Trade Agreements in the Enlarged EU - A Gravity Model Estimate

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Abstract

The aim of this paper is to estimate the effect of the EU’s eastern enlargement on the trade patterns of the Central and Eastern European countries (CEECs) that joined the Union in May 2004. In particular, the paper investigates whether and how the EU’s free trade agreements (FTAs) with the CEECs have affected centre-periphery and intra-periphery trade flows. It also evaluates whether the EU-membership factor has had the added positive effects on exports from the CEECs as anticipated. The analysis focuses on bilateral trade flows between eight CEECs and the EU-23, for which a gravity equation is estimated using a system GMM dynamic panel data approach. The results support the assumptions that gravity forces and ‘persistence effects’ do indeed matter. With respect to the effect of FTAs, evidence is found that FTAs between EU countries and CEECs matter. Yet there is also evidence that the presence of intra-periphery agreements have helped to expand intra-periphery trade and limit the emergence of a hub-and-spoke relationship between the EU and the CEECs. These results have important policy implications for the trade strategy of EU candidate countries in south-eastern Europe as well as in the southern Mediterranean. According to the empirical results, these countries should move towards a regional free trade area as exemplified by the Central European Free Trade Agreement and the Baltic Free Trade Agreement to avoid hub-and-spoke effects.

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Bibliographic Info

Paper provided by European Network of Economic Policy Research Institutes in its series Economics Working Papers with number 037.

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Length: 20 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:epr:enepwp:037

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Related research

Keywords: trade flows; regional integration; EU enlargement; gravity model; dynamic panel data;

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Cited by:
  1. Martínez-Zarzoso, Inmaculada & Felicitas, Nowak-Lehmann D. & Horsewood, Nicholas, 2009. "Are regional trading agreements beneficial?: Static and dynamic panel gravity models," The North American Journal of Economics and Finance, Elsevier, vol. 20(1), pages 46-65, March.
  2. Sithanonxay Suvannaphakdy & Chris Czerkawaski & Toshihisa Toyoda, 2013. "Potential Impacts Of Regional Trade Enlargement In East Asia On Laos' Trade," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 38(3), pages 85-110, September.
  3. Cipollina, Maria & Salvatici, Luca, 2006. "Reciprocal Trade Agreements in Gravity Models: A Meta-analysis," Working Papers 18877, TRADEAG - Agricultural Trade Agreements.
  4. Innwon Park, 2006. "East Asian Regional Trade Agreements: Do They Promote Global Free Trade?," Pacific Economic Review, Wiley Blackwell, vol. 11(4), pages 547-568, December.
  5. Horsewood, Nicholas & Voicu, Anca Monika, 2012. "Does corruption hinder trade for the new EU members?," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(47), pages 1-28.

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