Regional Trade Integration and Spatial Effects in the Euro-Mediterranean Zone

During recent years, regional economic integration has played a crucial role in the conduction of trade policies. Economic integration relies upon the concept of joint commercial policies within regions by which countries enable to promote their trade potentials. Basically, a new type of cooperation throughout new preferential trade agreements has emerged by economic blocks such as MERCOSUR, NAFTA, ASEAN and others. Now, there is an appropriate avenue for the nations of Euro-Mediterranean to deepen their economic relations and benefit from regional integration effects. The present paper makes attempt to indicate the impact of possible economic integration on the international trade flows of the Euro-Mediterranean countries. Accordingly, it uses a trade gravity model in order to explore main determinants that would significantly affect the trade flows of mentioned countries. To the end, an application of spatial econometric methods can assist us in obtaining relevant estimation results. The contiguity effect must be considered because of spatial dependence of the Euro-Mediterranean countries. These countries have some common borders and they therefore have impacts on each other and their relations can be influenced by neighborhood. Thus estimating the model through traditional econometrics obtains biased results and the model must be solved by spatial techniques. The paper thus tries to answer the question of to what extent the contiguity factor can influence the intra-trade flows of the Euro-Mediterranean countries.