On the Trade Balance Effects of Free Trade Agreements between the EU-15 and the CEEC-4 Countries

33 Pages Posted: 20 Jun 2008

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Christophe Rault

IZA Institute of Labor Economics; University of Orleans; CESifo (Center for Economic Studies and Ifo Institute)

Robert Sova

Academy of Economic Studies; Université Paris I Panthéon-Sorbonne - Centre Maison des Sciences Economiques

Anamaria Sova

Bucharest Academy of Economic Studies; CES Sorbonne University

Date Written: March 1, 2008

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.

Keywords: Regionalisation, European integration, Panel data methods

JEL Classification: E61, F13, F15, C25

Suggested Citation

Caporale, Guglielmo Maria and Rault, Christophe and Rault, Christophe and Sova, Robert and Sova, Anamaria and Sova, Anamaria, On the Trade Balance Effects of Free Trade Agreements between the EU-15 and the CEEC-4 Countries (March 1, 2008). William Davidson Institute Working Paper No. 912, Available at SSRN: https://ssrn.com/abstract=1147687 or http://dx.doi.org/10.2139/ssrn.1147687

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance ( email )

Kingston Lane
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+44 1895 269770 (Fax)

HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

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Berlin, 10117
Germany

Christophe Rault (Contact Author)

University of Orleans ( email )

Rue de Blois
BP 6739
LEO, Orleans, Orleans cedex 2 45067
France

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Robert Sova

Academy of Economic Studies ( email )

6 Piata Romana, 1-st District, PO 22
Bucharest, 010374
Romania

HOME PAGE: http://www.cig.ase.ro

Université Paris I Panthéon-Sorbonne - Centre Maison des Sciences Economiques

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Paris Cedex 13, 75647
France

Anamaria Sova

Bucharest Academy of Economic Studies

6, Romana Square, District 1
Bucharest, 010374
Romania

CES Sorbonne University ( email )

106-112 bd. de l'Hopital, 75647, Paris, cedex 13
Paris
France

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