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Title: On the trade balance effects of free trade agreements between the EU-15 and the CEEC-4 countries
Authors: Caporale, GM
Rault, C
Sova, AM
Sova, R
Keywords: Regionalisation; European integration; Panel data methods
Issue Date: 2008
Publisher: Brunel University
Citation: Economics and Finance Working papers, Brunel University, 08-10.
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. However, exports and imports are affected differently, leading to some disparity in trade flow performance between countries. Therefore, there is an asymmetric impact on the trade balance, the agreement variable resulting in a trade balance deficit in the CEEC.
Appears in Collections:Economics and Finance
Dept of Economics and Finance Research Papers

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