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Pattern of trade and European economic integration : an unexpected relation

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Author Info
Fabien Rondeau (CREM - CNRS)

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Abstract

In this article, the degree of integration between European countries is linked to the evolution of the pattern of trade. Evolution of the long-run sensitivity between European outputs is estimated by recursive Fully-Modifed Ordinary Least Squares (FM-OLS) and compared to a recursive index of intra-industry trade. Significant correlations are found between integration and intra-industry trade share. Interestingly, correlations have not all the same sign: positive for one group of countries and negative for others. The explanatory variable seems to be the initial intra-industry trade share. In the last section, a Hansen test is computed and confirms a threshold effect of the pattern of trade on economic integration. Finally, the development of the intra-industry trade due to the creation of the European Monetary Union has a positive e¤ect on integration for some countries but also a negative e¤ect on integration for other European countries.

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Paper provided by Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS in its series Economics Working Paper Archive (University of Rennes 1 & University of Caen) with number 200614.

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Date of creation: 2006
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Handle: RePEc:tut:cremwp:200614

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Related research
Keywords: Trade; Growth; Intra-industry trade; Integration;

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Find related papers by JEL classification:
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General

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