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Europe’s Internal Market at Fifty: Over the Hill?

Author

Listed:
  • Straathof, B.

    (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)

  • Linders, G.J.M.

Abstract

For more than half a century, members of the European Union (EU) have pursued policies aimed at reducing the cost of cross- border transactions. Using a closed-form solution for the non-linear gravity system of Anderson and Van Wincoop (2003) we find that Internal Market policies have created trade between EU members, while diversion of trade with non members has been limited. Around 1995, 18 percent of total trade by EU15 countries can be attributed to the Internal Market. In the second half of the 1990’s the European advantage started to deteriorate relative to other trade flows: in 2005 the contribution of the Internal Market was just 9 percent. Most enlargements of the EU have had a positive impact on trade.

Suggested Citation

  • Straathof, B. & Linders, G.J.M., 2009. "Europe’s Internal Market at Fifty: Over the Hill?," Serie Research Memoranda 0055, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  • Handle: RePEc:vua:wpaper:2009-55
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    File URL: http://degree.ubvu.vu.nl/repec/vua/wpaper/pdf/20090055.pdf
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    References listed on IDEAS

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    1. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
    2. Brada, Josef C & Mendez, Jose A, 1985. "Economic Integration among Developed, Developing and Centrally Planned Economies: A Comparative Analysis," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 549-556, November.
    3. 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 474-481, August.
    4. Aitken, Norman D, 1973. "The Effect of the EEC and EFTA on European Trade: A Temporal Cross-Section Analysis," American Economic Review, American Economic Association, vol. 63(5), pages 881-892, December.
    5. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72.
    6. Egger, Hartmut & Egger, Peter & Greenaway, David, 2008. "The trade structure effects of endogenous regional trade agreements," Journal of International Economics, Elsevier, vol. 74(2), pages 278-298, March.
    7. Straathof, Sebastiaan M., 2007. "Shannon's entropy as an index of product variety," Economics Letters, Elsevier, vol. 94(2), pages 297-303, February.
    8. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
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    More about this item

    Keywords

    European Union; gravity equation; trade diversion;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F10 - International Economics - - Trade - - - General

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