EU ACCESSION AND TRADE INTEGRATION: THE GRAVITY MODEL OF TRADE IN THE CASE OF THE EU CANDIDATE COUNTRIES
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In the majority of the EU potential members agricultural sector is playing a prominent role. Such an outcome is based on the high contribution of the agricultural sector on GDP, employment and trade accounts. EU initiated bilateral trade liberalization with the Western Balkans through the establishment of the ATPs. Furthermore, trade liberalization is extended in the regional level through the establishment of renewed CEFTA 2006. Despite the significant improvement, their export competitiveness remains weak. In the long run, agricultural exports might contribute on improvement of the export performance of the EU candidates. Main findings of the gravity model employed in this paper suggest that exports are positively affected by product size (GDP), and to lesser extent by the GDP of trading partners. Exports fall with the increase of the distance, and the fall in the value of exports is greater as larger is the distance between the trading partners. Therefore, the marginal fall in exports increases as far as the geographical distance between the trading partners increase. Initial assumptions that PTAs and cultural ties facilities the trade flows were affirmatively confirmed. Trade liberalization had a positive implication on improving export performance of the EU candidate countries.Keywords:
Accession
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In this paper, we analyze the relationship between international trade and economic growth, from the point of view of one of the most traditional hypothesis within this field, namely, the export-led growth hypothesis. To this end, we apply Grangercausality tests, in a cointegration framework, to data on exports and GDP of the eight CEECs that became members of the EU in 2004.
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World trade has grown rapidly. Several factors are highlighted by literature as a driving force behind the growth of world trade. Reduction in barriers to trade is one of them. A comprehensive empirical investigation is carried to ascertain the trade reducing and increasing effect of barriers to trade which are also known determinants of trade. The modified gravity model developed in this study analyses the effect of GDP, distance,remittances, FDI, transportation cost, exchange rate, inflation, population, import and export on trade flows. The study revealed that the population, import and transportation cost, distance, Tariff imposed by trading partner, FDI and Population of trading country are the determinants and significantly affect exports of developing economies. The study also ascertain that transportation cost, distance, population of trading partner, FDI of both trading countries and remittances of trading partner are the determinants that have major impact on import of developing nations.
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Pakistan is facing a chronic trade deficit due to highly concentrated nature of its international trade. The exports are dependent on the few lower value added agriculture and manufacturing industries, and are directed toward few trading partners. The highly concentrated nature of exports result in higher vulnerability and dependence of the economy. Pakistan signed regional and bilateral free trade agreements for diversification of its exports and markets. These free trade agreements significantly distorted the trade balance due to relatively lower specialization level of Pakistan. The trade theories and empirical studies urge achievement of competitive specialization in diversified exports and markets. This study attempts to investigate the macroeconomic behavior of export flow and export potential of Pakistan with its bilateral trading partners employing the augmented gravity model using panel data from 40 trading partners for the period 1991-2011. The dependent variable is merchandise exports flow, which is explained by the domestic supply capacity, demand potential of trading partners, relative price level and binary variables for free trade agreements, common language and common border. The model is then used to investigate potential markets for exports by Pakistan and provides a framework for export and market diversification. The annual data for this study is available in Statistical Year Book of Pakistan, World Development Indicators and International Financial Statistics. The results show that Pakistan’s export is positively determined by its supply capacity and partner country’s demand potential as well as market size, whereas negatively determined by the geographical distance. The domestic supply capacity shows the highest possible effect. The relative price shows significant positive, but less elastic impact. The common language shows significant positive impact while common border shows negative impact. The free trade agreements of Pakistan show negative insignificant impact. The result of export potential shows that the Pakistan has higher export potential with India, Philippines, Japan, Singapore, Malaysia and Indonesia, in Asia. Morocco, Egypt and Tanzania, in Africa. New Zealand and Australia, in Oceana. Hungary, Austria, Switzerland, Finland, Norway, Denmark and Sweden, in Europe. The Europe emerged as the most potential region for Pakistan’s exports. The policy implications of this study are that Pakistan needs to develop and diversify its industries targeting market fundamentals of potential economies, and revisit its regional and bilateral free trade agreements with a view to improving the trade balance and achieving sustainable economic development.
Balance of trade
Export performance
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In the majority of the EU potential members agricultural sector is playing a prominent role. Such an outcome is based on the high contribution of the agricultural sector on GDP, employment and trade accounts. EU initiated bilateral trade liberalization with the Western Balkans through the establishment of the ATPs. Furthermore, trade liberalization is extended in the regional level through the establishment of renewed CEFTA 2006. Despite the significant improvement, their export competitiveness remains weak. In the long run, agricultural exports might contribute on improvement of the export performance of the EU candidates. Main findings of the gravity model employed in this paper suggest that exports are positively affected by product size (GDP), and to lesser extent by the GDP of trading partners. Exports fall with the increase of the distance, and the fall in the value of exports is greater as larger is the distance between the trading partners. Therefore, the marginal fall in exports increases as far as the geographical distance between the trading partners increase. Initial assumptions that PTAs and cultural ties facilities the trade flows were affirmatively confirmed. Trade liberalization had a positive implication on improving export performance of the EU candidate countries
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This paper examines the process of Bangladesh's trade liberalization and its impact on the growth and structure of exports, imports, GDP and other relevant macroeconomic variables with particular emphasis on exports. It also provides an updated account of the various structural adjustment programs undertaken in Bangladesh including trade, fiscal, industrial and financial reforms, and explains how these reforms supplemented one another to promote greater market and export orientation. Various Indicators of trade liberalization show a substantial shift of the Bangladesh external trade regime and the resultant reduction in anti-export bias. Spearheaded by textiles and readymade garments, both total- and manufacturing exports consistently grew over the post-liberalization period. Real GDP also registered a steady growth during the post-liberalization period, particularly during the 1990s. An empirical investigation based on a distributed lag modeling and cointegration suggests that both anti-export bias reduction and import-GDP ratio, the latter being a proxy for imported capital, have significantly impacted on exports in the long-term.
Macro
Macro level
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South Africa has relatively not been affected that significantly by the global food end economic crises. Although, the exports of South Africa’s traditional agricultural exports showed a moderate dip over the last two years. However, the country’s agricultural export base that earns valuable foreign currency is quite shallow. Against this background the study indentified ten agricultural export products which showed a significant increase in exports over the last years. These emerging agricultural exports form the basis for the analysis of the determinants of export growth. The identified determinants will provide a guideline for future trade diversification. An augmented gravity model was applied to investigate factors such as transaction cost, market size, the stage of economic development, exchange rate fluctuations and the impact of trade agreements on the export flows of the selected products. Various factors were found to have an significant impact on trade flows amongst which: economic market size, supply capacity and physical market size.
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This study considers the role of export diversification in determining trade outcomes during the global financial crisis. The impact of export diversification (or concentration) is measured by assessing three different dimensions of specialization. First, concentration by geographic destination is considered; that is, whether the bulk of exports from a country go to many or few trading partners. Second, industry/sectoral concentration is considered; that is, whether a country’s exports are scattered across many industries and sectors, or concentrated in just a few. Third, product concentration is considered; that is, whether countries produce many products within their export sectors or just a few. The workhorse gravity trade model is adapted with trade diversification as an additional trade cost, and the model solution is empirically tested on a dataset containing over 500 thousand observations for Latin America. Industry and product concentration are found to significantly affect the resilience of Latin American countries’ trade during the global financial crisis - increasing the diversity of both export sectors and export products within sectors by one standard deviation reduces the quarterly decline in exports by approximately 4.7 percent. Diversifying exports across many different trading partners is not found to significantly affect outcomes.
Export performance
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In this paper we established an panel data model to study China′s exports volatility and analyzed the impact of trade agreements on China′s export fluctuations,using panel data covering 25 trading partner countries of China from year 1984 to 2010.The results have shown that China′s accession to the WTO and the establishment of regional trade arrangements has reduced the export volatility of China,while the impact of our trade partners′ accession to the WTO is not statistically significant.Moreover,improved trade competitiveness and the stability of the economic growth could help to reduce the trade volatility of China′s exports.
Accession
Export trade
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This report investigates the possible effects of a Free Trade Area between the European Union and its three main trading partners: India, South Korea and the Association of South East Asian Nations (ASEAN) countries, focusing on the agricultural sector. The report includes an analysis of the ongoing bilateral negotiations and bilateral trade flows based on trade policy (at tariff line level), comparative advantages assessment and a modeling analysis of the implications of preferential liberalization in both, a CGE (LEITAP, modified version of the GTAP model) and a partial equilibrium context (PEATSim model). Results show that the overall level of agri-food production in Asian countries is driven by income and population growth, main determinants of increase in demand particularly in India. Different degrees of liberalization in bilateral agricultural and food trade do not significantly affect the total amount of agricultural production in Asian countries and the EU, however, it leads to trade creation and trade diversion effects. Bilateral trade between EU and the Asian countries tend to increase (trade creation) whilst Asian exports to third countries tend to diminish (trade diversion). The implementation of the different policy options (partial and full liberalization) determines a decline in EU overall imports due to the prevailing effect of trade diversion over trade creation. ASEAN imports and export from/to the EU grow considerably under the liberalization scenarios determining a positive net trade of 22 billion euro for the agri-food sector. Under full liberalization scenario Indian agri-food exports to the EU grow by 4 billion reaching almost 6.3 billion . Indian agri-food imports grow even faster from 0.2 up to 19 billion . The value of South Korean agri-food exports to the EU grows from 46 million in the baseline to 4.9 billion under the full liberalization. Total European agri-food exports expand by almost 11% from partial to the full liberalisation scenario.
Trade creation
Partial equilibrium
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The last four decades, Dutch exports and imports grew annually about 7.5%, while re-exports rocketed in the last two decades. Using a gravity approach this paper finds that the increase in trade is largely caused by income developments. Trade policy, consisting of reductions in import tariffs and other trade barriers and the creation of the EU internal market, also has a significant impact on trade growth, although much smaller. Without any liberalisation of trade policy since 1970 the ratio of trade (excluding re-exports) to GDP would have been about 8%- points lower. By estimating the trade enhancing-effect of trade policy on GDP we conclude that trade policy has contributed 6% to 8% to the growth of national income in Netherlands since the 1970s. Foreign Direct Investments (FDI) experienced a massive but erratic growth, mostly in the last two decades. Income developments could explain half of that growth; deregulations of national capital markets explain only a small part of FDI growth.
Openness to experience
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