European integration, FDI and the geography of French trade

Abstract

This paper uses an augmented gravity model to investigate whether the 1978-2000 process of European integration has changed the geography of trade within France, with a particular focus on trends in border regions. We support the finding that, once controlled for bilateral distance, origin- and destination-specific characteristics, French border regions trade on average 73% more with neighboring countries than predicted by the gravity norm. They perform even better (129%) if they have good cross-border transport connections with the neighboring country. However, this higher performance has fallen drastically in the French border regions at the periphery of Europe over the period of integration. We show that this downward trend is partly due to the decrease in the propensity of foreign affiliates to trade with their home country. This shift in trade focus is less pronounced for the Belgian-Luxembourg and German firms located in regions with better access to the EU core.