Specialization, Gravity, and European Trade in Final Goods

36 Pages Posted: 15 Sep 2013

See all articles by Richard Frensch

Richard Frensch

Osteuropa-Institut Regensburg

Jan Hanousek

Faculty of Business and Economics, Mendel University in Brno; Centre for Economic Policy Research (CEPR)

Evžen Kočenda

Charles University in Prague - Institute of Economic Studies; Institute of Information Theory and Automation (Czech Academy of Sciences) - Department of Econometrics; CESifo; University of Regensburg - Institute for East and Southeast European Studies; University of Michigan at Ann Arbor - The William Davidson Institute

Date Written: September 12, 2013

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.

Keywords: international trade, gravity models, panel data, European Union

JEL Classification: F14, F16, L24

Suggested Citation

Frensch, Richard and Hanousek, Jan and Kocenda, Evzen, Specialization, Gravity, and European Trade in Final Goods (September 12, 2013). William Davidson Institute Working Paper No. 1054, Available at SSRN: https://ssrn.com/abstract=2324856 or http://dx.doi.org/10.2139/ssrn.2324856

Richard Frensch

Osteuropa-Institut Regensburg ( email )

Landshuter Str. 4
D-93047 Regensburg
Germany
0 941 943 5412 (Phone)

Jan Hanousek

Faculty of Business and Economics, Mendel University in Brno ( email )

Brno
Czech Republic

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Evzen Kocenda (Contact Author)

Charles University in Prague - Institute of Economic Studies ( email )

Opletalova St. 26
Prague, 11000
Czech Republic

HOME PAGE: http://kocenda.fsv.cuni.cz

Institute of Information Theory and Automation (Czech Academy of Sciences) - Department of Econometrics ( email )

Pod vodarenskou vezi 4
CZ-18208 Praha 8
Czech Republic

CESifo

Poschinger Str. 5
Munich, DE-81679
Germany

University of Regensburg - Institute for East and Southeast European Studies

Landshuterstr. 4
Regensburg, 93047
Germany

University of Michigan at Ann Arbor - The William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

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