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Trade integration and trade imbalances in the European Union: a network pespective

Author

Listed:
  • Gautier M. Krings

    (ICTEAM, Université Catholique de Louvain)

  • Jean-François Carpantier,

    () (CREA, Université du Luxembourg)

  • Jean-Charles Delvenne

    (ICTEAM, CORE, Université Catholique de Louvain)

Abstract

We study the ever more integrated and ever more unbalanced trade relationships between European countries. To better capture the complexity of economic networks, we propose two global measures that assess the trade integration and the trade imbalances of the European countries. These measures are the network (or indirect) counterparts to traditional (or direct) measures such as the trade-to-GDP (Gross Domestic Product) and trade deficit-to-GDP ratios. Our indirect tools account for the European inter-country trade structure and follow (i) a decomposition of the global trade flow into elementary flows that highlight the long-range dependencies between exporting and importing economies and (ii) the commute-time distance for trade integration, which measures the impact of a perturbation in the economy of a country on another country, possibly through intermediate partners by domino effect. Our application addresses the impact of the launch of the Euro. We find that the indirect imbalance measures better identify the countries ultimately bearing deficits and surpluses, by neutralizing the impact of trade transit countries, such as the Netherlands. Among others, we find that ultimate surpluses of Germany are quite concentrated in only three partners. We also show that for some countries, the direct and indirect measures of trade integration diverge, thereby revealing that these countries (e.g. Greece and Portugal) trade to a smaller extent with countries considered as central in the European Union network.

Suggested Citation

  • Gautier M. Krings & Jean-François Carpantier, & Jean-Charles Delvenne, 2013. "Trade integration and trade imbalances in the European Union: a network pespective," CREA Discussion Paper Series 13-22, Center for Research in Economic Analysis, University of Luxembourg.
  • Handle: RePEc:luc:wpaper:13-22
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    References listed on IDEAS

    as
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    Cited by:

    1. Alexei P Kireyev & Andrei Leonidov, 2016. "A Network Model of Multilaterally Equilibrium Exchange Rates," IMF Working Papers 16/130, International Monetary Fund.

    More about this item

    Keywords

    Trade network; Integration; Euro; Rose effect; Flow decomposition; Commute-time distance;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics

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