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A Gravity Model Approach to Estimating Prospective Trade Gains in the EU Accession and Associated Countries

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  • Marie Stack
  • Eric Pentecost

Abstract

Examining the trade prospects for the new European Union (EU) member states and the EU associated partner countries is an important issue in the context of European eastward enlargement and greater economic integration with its immediate neighbours. An out-ofsample approach to projecting trade volumes for twenty countries of interest is adopted using a gravity equation for a panel data set of bilateral export flows from twelve EU countries to twenty OECD trading partners over the 1992-2003 period. The potential trade volumes are calculated from a gravity model of new trade theory (NTT) determinants. The selected twenty countries’ prospects for further trade integration vis-à-vis the EU can be gauged by expressing the trade volume projections as a ratio of actual trade volumes for each pair of countries. The projected trade ratios for the ten new member states are found to be multiples of actual 2003 levels, indicating that trade expansion looks set to continue. Near unity values, however, are more frequent among the Mediterranean countries, indicating fewer opportunities for further trade integration with the EU.

Suggested Citation

  • Marie Stack & Eric Pentecost, 2011. "A Gravity Model Approach to Estimating Prospective Trade Gains in the EU Accession and Associated Countries," Working Papers 2010/11, Nottingham Trent University, Nottingham Business School, Economics Division.
  • Handle: RePEc:nbs:wpaper:2010/11
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    File URL: http://www.ntu.ac.uk/research/document_uploads/104207.pdf
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    References listed on IDEAS

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    1. T. S. Breusch & A. R. Pagan, 1980. "The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 239-253.
    2. 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.
    3. Christos Papazoglou & Eric J. Pentecost & Helena Marques, 2006. "A Gravity Model Forecast of the Potential Trade Effects of EU Enlargement: Lessons from 2004 and Path-dependency in Integration," The World Economy, Wiley Blackwell, vol. 29(8), pages 1077-1089, August.
    4. Nilsson, Lars, 2000. "Trade integration and the EU economic membership criteria," European Journal of Political Economy, Elsevier, vol. 16(4), pages 807-827, November.
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    1. repec:bla:worlde:v:40:y:2017:i:10:p:2255-2276 is not listed on IDEAS

    More about this item

    Keywords

    Panel data; Gravity model; Trade integration;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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