Changes in Bilateral Trade Costs between European Union Member States & Major Trading Partners: An Empirical Analysis from 1989 - 2006
Today, more than 50 years after the Rome Treaty, the EU has made great strides in its’ economic integration and liberalization of movement of goods and people. International trade theory predicts deepening economic integration inside the European Union will increase regional trade and have large effects on agglomeration of industry patterns. In particular, the Core Periphery theory predicts the core of Western Europe and center of economic prosperity will spread economic growth to the periphery through increased integration. Thus, it is hoped that the EU Core, who benefit from their central location and a long history of integration in Western Europe, will increase growth to the periphery through deepening integration and a relative drop in trade costs. Critics cite the Spring 2010 debt crisis in Greece and subsequent shock to Euro zone stability as an indication that EU integration has not been successful. Given increased skepticism of the Euro zone, measuring changes in trade costs between 2001 Euro adopters and the main trading partners provides one quantitative measure to better understand the depth of EU integration in the recent period from 1989‐2006. Using the Novy (2008) model, which measures bilateral trade costs directly from trade flows, the measure includes all trade costs incurred in getting a good to its’ final user, other than the production cost of the good itself. Results show the drop in trade costs over the more recent period 1995‐2006 to be largest for trade between countries who adopt the Euro in 2001 (‐53%). The second largest drop in bilateral trade costs is between 2001 Euro adopters and the Central Eastern European Countries who joined the EU in 2004 (‐49%). The third largest drop in bilateral trade costs is between the 2001 Euro adopters group and the large non‐continental Europe trading partners (‐45%). Large differences in trade costs appear between countries within the 2001 Euro adopters who are considered members of the Core versus those in the Periphery. Over the 1995‐ 2006 period trade costs drop by 24% more for trade within the Core versus Trade between the Core and the Periphery. While the Core‐Periphery theory is slow to be realized in our empirical results of trade costs over the 1995‐2006 period; trade costs among EU members and Euro adopters are relatively large‐ 33‐53%‐ when compared to trade costs measured for the non‐continental European trading partners‐5%. This 7‐11 times larger drop in trade costs for trade intra‐EU and Euro adopter members‐ both original and accession‐ is an empirical testament to the EU’s success at integrating diverse economies within the union.
|Date of creation:||Jul 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alan Deardorff, 1998.
"Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?,"
in: The Regionalization of the World Economy, pages 7-32
National Bureau of Economic Research, Inc.
- Deardorff, A.V., 1995. "Determinants of Bilateral Trade : Does Gravity Work in a Neoclassical World?," Papers 95-05, Michigan - Center for Research on Economic & Social Theory.
- Alan V. Deardorff, 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Working Papers 5377, National Bureau of Economic Research, Inc.
- Richard Portes & Hélène Rey, 2001.
"The Determinants of Cross-Border Equity Flows,"
DELTA Working Papers
2001-08, DELTA (Ecole normale supérieure).
- R Portes & H Rey, 2000. "The Determinants Of Cross-Border Equity Flows," CEP Discussion Papers dp0446, Centre for Economic Performance, LSE.
- Richard Portes & Helene Rey, 1999. "The Determinants of Cross-Border Equity Flows," NBER Working Papers 7336, National Bureau of Economic Research, Inc.
- Portes, Richard & Rey, Hélène, 1999. "The Determinants of Cross-Border Equity Flows," CEPR Discussion Papers 2225, C.E.P.R. Discussion Papers.
- Richard Portes & Helene Rey, 2000. "The determinants of cross-border equity flows," LSE Research Online Documents on Economics 20203, London School of Economics and Political Science, LSE Library.
- Bhagwati, Jagdish & Panagariya, Arvind, 1996. "The Theory of Preferential Trade Agreements: Historical Evolution and Current Trends," American Economic Review, American Economic Association, vol. 86(2), pages 82-87, May.
- Silvia Nenci, 2009. "Tariff liberatization and the growth of word trade: A comparative historiocal analysis to evaluate the multilateral trading system," Departmental Working Papers of Economics - University 'Roma Tre' 0110, Department of Economics - University Roma Tre.
- James E. Anderson & Eric van Wincoop, 2000.
"Gravity with Gravitas: A Solution to the Border Puzzle,"
Boston College Working Papers in Economics
485, Boston College Department of Economics.
- James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
- James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
- Ades, Alberto F & Glaeser, Edward L, 1995.
"Trade and Circuses: Explaining Urban Giants,"
The Quarterly Journal of Economics,
MIT Press, vol. 110(1), pages 195-227, February.
- Alberto F. Ades & Edward L. Glaeser, 1994. "Trade and Circuses: Explaining Urban Giants," NBER Working Papers 4715, National Bureau of Economic Research, Inc.
- Glaeser, E.L. & Ades, A.F., 1993. "Trade and Circuses: Explaining Urban Giants," Harvard Institute of Economic Research Working Papers 1646, Harvard - Institute of Economic Research.
- Dennis Novy, 2012.
"Gravity Redux: Measuring International Trade Costs with Panel Data,"
CEP Discussion Papers
dp1114, Centre for Economic Performance, LSE.
- Dennis Novy, 2013. "Gravity Redux: Measuring International Trade Costs With Panel Data," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 101-121, 01.
- Novy, Dennis, 2008. "Gravity Redux : Measuring International Trade Costs with Panel Data," The Warwick Economics Research Paper Series (TWERPS) 861, University of Warwick, Department of Economics.
- Dennis Novy, 2011. "Gravity Redux: Measuring International Trade Costs with Panel Data," CESifo Working Paper Series 3616, CESifo Group Munich.
- Paul Krugman, 1990.
"Increasing Returns and Economic Geography,"
NBER Working Papers
3275, National Bureau of Economic Research, Inc.
- Andrew K. Rose, 2002.
"Do We Really KNow that the WTO Increases Trade?,"
182002, Hong Kong Institute for Monetary Research.
- James E. Anderson & Douglas Marcouiller, 2002.
"Insecurity And The Pattern Of Trade: An Empirical Investigation,"
The Review of Economics and Statistics,
MIT Press, vol. 84(2), pages 342-352, May.
- James E. Anderson & Douglas Marcouiller, S.J., 1999. "Insecurity and the Pattern of Trade: An Empirical Investigation," Boston College Working Papers in Economics 418, Boston College Department of Economics, revised 03 Aug 2000.
- Shang-Jin Wei, 1996. "Intra-National versus International Trade: How Stubborn are Nations in Global Integration?," NBER Working Papers 5531, National Bureau of Economic Research, Inc.
- James E. Anderson & Eric van Wincoop, 2004.
NBER Working Papers
10480, National Bureau of Economic Research, Inc.
- Fujita, Masahisa & Mori, Tomoya, 2005.
"Frontiers of the New Economic Geography,"
IDE Discussion Papers
27, Institute of Developing Economies, Japan External Trade Organization(JETRO).
- Schürmann, Carsten & Talaat, Ahmed, 2002. "The European peripherality index," ERSA conference papers ersa02p224, European Regional Science Association.
- Behrens, Kristian & Gaigné, Carl & Ottaviano, Gianmarco & Thisse, Jacques-François, 2003. "Inter-regional and International Trade: Seventy Years After Ohlin," CEPR Discussion Papers 4065, C.E.P.R. Discussion Papers.
- BEHRENS, Kristian & GAIGNE, Carl & OTTAVIANO, Gianmarco I.P. & THISSE, Jacques-François, .
"Countries, regions and trade: on the welfare impacts of economic integration,"
CORE Discussion Papers RP
-1936, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Behrens, Kristian & Gaigne, Carl & Ottaviano, Gianmarco I.P. & Thisse, Jacques-Francois, 2007. "Countries, regions and trade: On the welfare impacts of economic integration," European Economic Review, Elsevier, vol. 51(5), pages 1277-1301, July.
- Winters, L. Alan, 1996.
"Regionalism versus multilateralism,"
Policy Research Working Paper Series
1687, The World Bank.
- Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-81, August.
- Bhagwati, Jagdish & Greenaway, David & Panagariya, Arvind, 1998. "Trading Preferentially: Theory and Policy," Economic Journal, Royal Economic Society, vol. 108(449), pages 1128-48, July.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:24259. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.