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Trade Growth in a Heterogeneous Firm Model: Evidence from South Easten Europe

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  • Kancs, d'Artis

    ()
    (London School of Economics and Catholic University of Leuven)

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    Abstract

    In 2007 a Free Trade Area (BFTA) will be created in the Balkans. In this paper we study the potential impact of BFTA on trade growth in the SEE. Given that welfare impacts associated with trade growth depend on the growth channels, more goods and varieties exported or at higher price or higher volume of goods and varieties are exported, in this paper we investigate the structure of integration-induced export growth in the Balkans. The empirical implementation of our analysis is complicated by the fact that firm-level trade data is not available for the SEE economies. In order to cope with this data paucity, we adopt a heterogeneous firm framework, which allows us to decompose the aggregate trade growth in two parts: the intensive margin of trade and the extensive margin of trade using only aggregate trade data. The empirical findings of our study suggest that the BFTA would primarily trigger trade growth through a growing number of exported goods (the extensive margin of trade). Thus, the actual welfare gains from trade growth in the Balkans might be larger than predicted by previous trade studies. We also found that a variable trade cost reduction would lead to higher export growth rates compared to a fixed trade cost reduction. These results allow us to draw detailed policy conclusions.

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    Bibliographic Info

    Paper provided by Institute for Economic Forecasting in its series Working Papers of Institute for Economic Forecasting with number 071201.

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    Length: 36 pages
    Date of creation: Dec 2007
    Date of revision:
    Handle: RePEc:rjr:wpiecf:071201

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    Keywords: Balkans; export growth; regional integration; trade costs;

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    10. Andrew Bernard & Joachim Wagner, 2001. "Export entry and exit by German firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 137(1), pages 105-123, March.
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    13. Bernard, A., 1997. "Exceptional Exporter Performance: Cause, Effect, or Both?," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 97-21, Massachusetts Institute of Technology (MIT), Department of Economics.
    14. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, American Economic Association, vol. 93(4), pages 1268-1290, September.
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    17. Egger, Peter, 2000. "A note on the proper econometric specification of the gravity equation," Economics Letters, Elsevier, Elsevier, vol. 66(1), pages 25-31, January.
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    19. Arellano, Manuel & Honore, Bo, 2001. "Panel data models: some recent developments," Handbook of Econometrics, Elsevier, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 53, pages 3229-3296 Elsevier.
    20. repec:rus:hseeco:122439 is not listed on IDEAS
    21. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, American Economic Association, vol. 95(3), pages 704-723, June.
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