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The Potential for Trade Between the Countries of EFTA and Central and Eastern Europe


  • Baldwin, Richard


Recent events, historical evidence and geographical proximity suggest that the six EFTAns and twelve Central and East European countries (CEECs) are natural trading partners. This paper evaluates this suggestion by estimating the potential for EFTA-CEEC trade using the gravity model of Wang and Winters (1991). The findings show that even at 1989 CEEC income levels, EFTA-CEEC trade should have been four times greater than it was. Thus the CEEC markets should have been as important to Austria, Iceland and Switzerland as were the EFTA markets. A second estimation is carried out assuming that CEECs' incomes catch up to 70% of the EC's by 2005, 2010 and 2020. In this scenario, EFTA-CEEC trade grows at double digit rates for decades, finally attaining a level where CEEC markets account for almost a fifth of EFTA members' exports to all of Europe.

Suggested Citation

  • Baldwin, Richard, 1993. "The Potential for Trade Between the Countries of EFTA and Central and Eastern Europe," CEPR Discussion Papers 853, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:853

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    References listed on IDEAS

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    Cited by:

    1. Waheed Akram Butt, 2008. "Pakistan's Export Potential: A Gravity Model Analysis," SBP Working Paper Series 23, State Bank of Pakistan, Research Department.
    2. Kalman Dezseri, 2000. "Economic relations between Russia and the Central European countries," IWE Working Papers 111, Institute for World Economics - Centre for Economic and Regional Studies- Hungarian Academy of Sciences.
    3. Partanen, Anssi, 2002. "Trade Potential around the Baltic Rim: A two-model experiment," Discussion Papers 645, The Research Institute of the Finnish Economy.
    4. Paas, Tiiu, 2002. "Gravity approach for exploring Baltic Sea regional integration in the field of international trade," HWWA Discussion Papers 180, Hamburg Institute of International Economics (HWWA).
    5. Jakab, Zoltan M. & Kovacs, Mihaly A. & Oszlay, Andras, 2001. "How Far Has Trade Integration Advanced?: An Analysis of the Actual and Potential Trade of Three Central and Eastern European Countries," Journal of Comparative Economics, Elsevier, vol. 29(2), pages 276-292, June.
    6. Jinhwan Oh & Orgilbold Tumurbaatar, 2011. "Mongolia's International Trade: Impact of Its Geographical Location," Working Papers EMS_2011_02, Research Institute, International University of Japan.
    7. Margarida Ponte Ferreira, 1994. "Integrating Poland in the World Economy: An Assessment of the Impact of Trade Liberalisation and Growth," The World Economy, Wiley Blackwell, vol. 17(6), pages 869-884, November.
    8. Gros, Daniel & Gonciarz, Andrzej, 1996. "A note on the trade potential of Central and Eastern Europe," European Journal of Political Economy, Elsevier, vol. 12(4), pages 709-721, December.
    9. Aurora A.C. Teixeira & Natércia Fortuna, 2006. "Human capital, trade and long-run productivity. Testing the technological absorption hypothesis for the Portuguese economy, 1960-2001," FEP Working Papers 226, Universidade do Porto, Faculdade de Economia do Porto.
    10. Frédérique Festoc, 1997. "Le potentiel de croissance du commerce des pays d'Europe centrale et orientale avec la France et ses principaux partenaires," Économie et Prévision, Programme National Persée, vol. 128(2), pages 161-181.
    11. Lindström, Maarit, . "Locational Sources of Competitiveness: Finnish Companies' International Business Operations in the Baltic Sea Region," ETLA A, The Research Institute of the Finnish Economy, number 37.
    12. Fidrmuc, Jarko, 1999. "Trade Diversion in the 'Left-Outs' in the Eastward Enlargement of the European Union," Transition Economics Series 8, Institute for Advanced Studies.
    13. Partanen, Anssi & Hirvensalo, Inkeri, 2002. "North- and Westbound Foreign Trade Potentilal of the Baltic Rim," Discussion Papers 678, The Research Institute of the Finnish Economy.
    14. Jarko Fidrmuc & Peter Huber & Jan Jakub Michalek, "undated". "Poland's Accession to the European Union: Demand for Protection of Selected Sensitive Products," WIFO Working Papers 117, WIFO.

    More about this item


    East-West Trade; Eastern Europe; EFTA; Gravity Model; Regional Integration;

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation


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