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What Determines Sectoral Trade in the Enlarged EU?

In this paper we estimate a sectoral gravity model for trade within a heterogeneous trade bloc, the enlarged EU, comprised of a high-income group (wealthiest EU), a middle-income group (Greece, Portugal and Spain), and a low-income group (acceding Central and Eastern European countries). The estimation was conducted on sectors with different degrees of scale economies and skill-intensities in the presence of transport costs. The results offer support for the call to incorporate trade theories based on both endowments and scale economies. In addition, whilst integrating poorer countries is beneficial for all of the participants in the bloc, there is still a role for redistribution policy. However, the EU’s Regional Policy, for example, should not be individual initiatives but should be a mix of policies, focussing on both income and education/skills, together with infrastructure development.

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Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2003_8.

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Date of creation: Sep 2003
Date of revision: Sep 2003
Handle: RePEc:lbo:lbowps:2003_8
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  1. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 7-46, 04.
  2. Wang, Z.K. & Winters, L.A., 1992. "The Trading Potential of Eastern Europe," Discussion Papers 92-21, Department of Economics, University of Birmingham.
  3. Nilsson, Lars, 2000. "Trade integration and the EU economic membership criteria," European Journal of Political Economy, Elsevier, vol. 16(4), pages 807-827, November.
  4. Melitz, Jacques, 2001. "Geography, Trade and Currency Union," CEPR Discussion Papers 2987, C.E.P.R. Discussion Papers.
  5. Cheikbossian, Guillaume & Maurel, Mathilde, 1997. "The New Geography of Eastern European Trade," CEPR Discussion Papers 1580, C.E.P.R. Discussion Papers.
  6. repec:cup:cbooks:9780521088237 is not listed on IDEAS
  7. Laszlo Matyas, 1997. "Proper Econometric Specification of the Gravity Model," The World Economy, Wiley Blackwell, vol. 20(3), pages 363-368, 05.
  8. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  9. Fritz Breuss & Peter Egger, 1999. "How Reliable Are Estimations of East-West Trade Potentials Based on Cross-Section Gravity Analyses?," Empirica, Springer, vol. 26(2), pages 81-94, June.
  10. Vittas, H. & Mauro, P., 1995. "Potential Trade with Core and Periphery: Industry Differences in Trade Patterns," Papers 10, American Institute for Contemporary German Studies-.
  11. Havrylyshyn, Oleh & Pritchett, Lant, 1991. "European trade patterns after the transition," Policy Research Working Paper Series 748, The World Bank.
  12. Redding, Stephen J. & Venables, Anthony J, 2000. "Economic Geography and International Inequality," CEPR Discussion Papers 2568, C.E.P.R. Discussion Papers.
  13. Rice, Patricia & Stewart, Martin & Venables, Anthony J, 2002. "The Geography of Intra-Industry Trade: Empirics," CEPR Discussion Papers 3368, C.E.P.R. Discussion Papers.
  14. Claudia M. Buch & Daniel Piazolo, 2000. "Capital and Trade Flows in Europe and the Impact of Enlargement," Kiel Working Papers 1001, Kiel Institute for the World Economy.
  15. Torsten Persson, 2001. "Currency unions and trade: how large is the treatment effect?," Economic Policy, CEPR;CES;MSH, vol. 16(33), pages 433-462, October.
  16. Anthony J. Venables, 2001. "Geography and International Inequalities: the Impact of New Technologies," CEP Discussion Papers dp0507, Centre for Economic Performance, LSE.
  17. Baldwin, R.E. & Forslid, R. & Haaland, J.I. & Knarvik, K.H.M., 2000. "EU Integration and Outsiders. A Simulation Study of industrial Location," Papers 2/2000, Norwegian School of Economics and Business Administration-.
  18. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
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