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Specialization, gravity, and European trade in final goods

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  • Richard Frensch
  • Jan Hanousek
  • Evzen Kocenda

Abstract

By combining and extending the previous literature, we develop and test a gravity specification that views bilateral gravity equations rooted in a Heckscher-Ohlin framework as statistical relationships constrained on countries??? multilateral specialization patterns. According to our results, Heckscher- Ohlin specialization incentives do not seem to play much of a role in the average European bilateral final goods trade relationship. However, this aggregate view conceals that trade in final goods between Western and Eastern Europe is driven by countries??? multilateral specialization incentives, as expressed by supply-side country differences relative to the rest of the world, fully compatible with the incomplete specialization version of Heckscher-Ohlin. This indicates that many of the final goods traded between Western and Eastern Europe are still different, rather than differentiated, products.

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  • Richard Frensch & Jan Hanousek & Evzen Kocenda, 2013. "Specialization, gravity, and European trade in final goods," William Davidson Institute Working Papers Series wp1054, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2013-1054
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    More about this item

    Keywords

    international trade; gravity models; panel data; European Union;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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