Modeling International Trade Flows Between Eastern European Countries and OECD Countries
AbstractOur paper deals with econometric developments for the estimation of the gravity model which lead to convergent parameter estimates even when a correlation exists between the explanatory variables and the specific unobservable characteristics of each unit. We implement panel data econometric techniques to characterize bilateral trade flows between heterogeneous economies. Our econometric results based on a sample of Eastern European countries (EEC) and OECD countries over a 18 year period highlight the importance of the taking into account of unobservable heterogeneity to obtain a specification in accordance with data properties and unbiased coefficients. The fixed effect factor decomposition (FEVD) technique appears the more suitable for this purpose. We focus more specifically on EEC countries belonging to the last wave of adhesion (Bulgaria and Romania). Since 1990, these countries have moved towards a market economy and more democracy. Our econometric results provide clear evidence in favor of the traditional trade theory based on comparative advantage which suggests a reallocation of labor intensive industry towards EEC generating a complementary specialization.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2851.
Length: 33 pages
Date of creation: Jun 2007
Date of revision:
Publication status: published in: Applied Economics Letters, 2009, 16(15), 1547-1554
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Find related papers by JEL classification:
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F15 - International Economics - - Trade - - - Economic Integration
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-07-07 (All new papers)
- NEP-EEC-2007-07-07 (European Economics)
- NEP-INT-2007-07-07 (International Trade)
- NEP-TRA-2007-07-07 (Transition Economics)
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.:
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