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On the Bilateral Trade Effects of Free Trade Agreements between the EU-15 and the CEEC-4 Countries

Author

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  • Caporale, Guglielmo Maria

    (Brunel University)

  • Rault, Christophe

    (University of Orléans)

  • Sova, Anamaria

    (E.B.R.C. Bucharest)

  • Sova, Robert

    (CREST & University of Paris 1 Panthéon-Sorbonne)

Abstract

The expansion of regionalism has spawned an extensive theoretical literature analysing the effects of Free Trade Agreements (FTAs) on trade flows. In this paper we focus on FTAs (also called European agreements) between the European Union (EU-15) and the Central and Eastern European countries (CEEC-4, i.e. Bulgaria, Hungary, Poland and Romania) and model their effects on trade flows by treating the agreement variable as endogenous. Our theoretical framework is the gravity model, and the econometric method used to isolate and eliminate the potential endogeneity bias of the agreement variable is the fixed effect vector decomposition (FEVD) technique. Our estimation results indicate a positive and significant impact of FTAs on trade flows. This finding is robust to the inclusion in the sample of a group of control countries (specifically Belarus, the Russian Federation and Ukraine) that did not sign an FTA. Besides, we show that trade growth after the FTA agreement with the EU was signed exceeded trade growth of the control group of countries which did not become members.

Suggested Citation

  • Caporale, Guglielmo Maria & Rault, Christophe & Sova, Anamaria & Sova, Robert, 2008. "On the Bilateral Trade Effects of Free Trade Agreements between the EU-15 and the CEEC-4 Countries," IZA Discussion Papers 3782, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3782
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    References listed on IDEAS

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    More about this item

    Keywords

    regionalisation; European integration; panel data methods;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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