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Border Effects and European Integration

  • Angela Cheptea

A new method for measuring trade potential from border effects is developed and applied to manufactured trade between the old 15 European Union (EU) members and 12 Central and East European (CEE) economies. Border effects are estimated with a theoretically compatible trade specification and much larger trade potentials are obtained than usually predicted by standard trade potential models. Even after a decade of regional trade liberalization, the integration of CEE and EU economies is two to three times weaker than intra-EU integration, revealing a large potential for East--West European trade. Adjusting for the impact of borders on multilateral resistance, yields lower trade potentials, but considerably larger than the magnitudes obtained with traditional approaches. (JEL codes: F10; F12; F14; F15) Copyright The Author 2012. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/cesifo/ifs035
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Article provided by CESifo in its journal CESifo Economic Studies.

Volume (Year): 59 (2013)
Issue (Month): 2 (June)
Pages: 277-305

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Handle: RePEc:oup:cesifo:v:59:y:2013:i:2:p:277-305
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