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On the bilateral trade effects of free trade agreements between the EU-15 and the CEEC-4 countries

[journal article]

Caporale, Guglielmo Maria; Rault, Christophe; Sova, Robert; Sova, Anamaria

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Abstract The expansion of regionalism has spawned an extensive theoretical literature analysing the effects of free trade agreements (FTAs) on trade flows. In this paper we focus on FTAs (also called European agreements) between the European Union (EU-15) and the Central and Eastern European countries (CEEC-4, i.e. Bulgaria, Hungary, Poland and Romania) and model their effects on trade flows by treating the agreement variable as endogenous. Our theoretical framework is the gravity model, and the econometric method used to isolate and eliminate the potential endogeneity bias of the agreement variable is the fixed effect vector decomposition (FEVD) technique. Our estimation results indicate a positive and significant impact of FTAs on trade flows. This finding is robust to the inclusion in the sample of a group of control countries (specifically Belarus, the Russian Federation and the Ukraine) that did not sign an FTA. Besides, we show that trade growth after the FTA agreement with the EU was signed exceeded trade growth of the control group of countries, which did not become members.
Classification Political Economy; Economic Policy; Economic Sectors
Free Keywords Regionalisation; European integration; Panel data methods; F13; F15; C23
Document language English
Publication Year 2009
Page/Pages p. 189-206
Journal Review of World Economics, 145 (2009) 2
DOI http://dx.doi.org/10.1007/s10290-009-0011-8
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)