Regional Integration and Trade: Controlling for Varying Degrees of Heterogeneity in the Gravity Model

The proliferation of regional trade agreements (RTAs) in the 1990s prompted a renewal of interest in studying the effect of regional integration on trade. Using a panel dataset of bilateral export flows from 12 EU countries to 20 OECD trading partners over the period 1992–2003, the trade effect of European regional integration, denoted by an EU dummy, is examined across a number of fixed effects (FE) specifications, each of which has been claimed as the correct econometric specification of the gravity model. Typically parsimonious in (time‐varying) economic variables and abundant in fixed effects, the FE specifications allow for varying degrees of heterogeneity in the gravity model. Two gravity models are estimated: a gravity model of traditional trade determinants and a gravity model of new trade theory (NTT) determinants. Both gravity models provide reasonable coefficient estimates, although they vary somewhat across the FE specifications for the traditional gravity model. Both gravity models are congruent in suggesting that the coefficient of the EU dummy declines in magnitude and becomes insignificant as an increasing degree of heterogeneity is admitted into the model. This suggests the fundamental importance of the econometric specification when evaluating trade policy effects within a gravity framework.     

中国与中东欧16国贸易效率和潜力研究——基于非效率项随机前沿引力模型

贸易效率和贸易潜力是衡量国际贸易有效程度、确定未来贸易发展方向的重要指标。基于非效率项随机前沿引力模型,分别在"16+1"和"16+1+10"背景下测算了中国与中东欧16国的贸易效率和潜力,结果表明:中国与中东欧国家的双边贸易效率较高,但贸易潜力不显著;中国对中东欧国家的出口贸易效率低于双边贸易效率,出口贸易潜力超过双边贸易潜力;出口贸易潜力在"16+1+10"背景下较"16+1"背景下有显著提高。由此,提出进一步落实"16+1"合作机制、扩大进口、改进交通运输设施的建议,以期实现贸易潜力,提高贸易效率。     

Trade and migration flows between some CEE countries and the UK

The recent enlargement of the European Union (EU) has enhanced interest in the causes and also the consequences of migration between Central and Eastern European (CEE) and Western European countries. This paper considers the possibility that some of these consequences make themselves felt in the trade flows between migrants' countries of origin and destination. Using a panel of data covering a number of CEE countries between 1996 and 2003, we employ an augmented gravity model to examine the effects of immigration from these transition countries on their bilateral trade flows with the UK. We pay attention to a number of issues that have been raised within the literature on gravity models. We find evidence that migration positively enhances the bilateral exports of the migrants' home country; however, there is less (but some) evidence that the imports from their destination country are also enhanced.     

Towards a New Trade Policy Between the USA and Middle‐East Countries:Estimating Trade Resistance and Export Potential

At the time of the conclusion of free trade areas (FTAs) between the USA and Middle‐East and North African (MENA) countries, there is a lack of literature concerning the measurement of the current US export position with regards to these countries, and the US export potential in this area. From recent developments of gravity models, this paper derives an estimable equation which includes various trade resistance variables, notably border effects, multilateral resistance as well as specific bilateral effects. The model is tested in order to scrutinise the impact of these variables on US exports to MENA countries, as well as the US export potential in this area. To that end, a selection of panel data specifications is proposed, mainly Hausman and Taylor models as well as Arellano and Bond dynamic models. Results unambiguously indicate that as compared to the other OECD countries, the USA suffers from a substantial trade integration deficit with MENA countries. This is reflected by the strongly negative values of the US‐MENA bilateral fixed effects, as well as the high bilateral border effects. In addition, the estimated actual/potential US export ratio to these countries is only 0.76. Therefore, implementing an FTA between the USA and MENA countries may allow the former to progressively improve its export position in this area. This would also help MENA countries diversify their supplying sources.     

In Search of Optimised Regional Trade Agreements and Applications to East Asia

We quantitatively analyse the trade effects of enhanced trade facilitation with extended gravity equations. Our findings confirm that RTAs comprised of countries equipped with better trade facilitation are more likely to be trade‐creating, less likely to be trade‐diverting, and are thus more likely to lead the world economy toward global free trade. We also find that (i) the traditional gains from shallow integration through eliminating tariff barriers will be greater for South‐South RTAs in East Asia such as an ASEAN‐China RTA, provided that the tariff‐reducing schedule is strictly fulfilled, (ii) the gains from deeper integration through enhancing trade facilitation will be greater for North‐North RTAs in East Asia such as a Japan‐Korea RTA, and (iii) the gains from a combined trade liberalisation strategy through tariff reductions and enhanced trade facilitation will be greater for North‐South RTAs in East Asia such as a China‐Korea and an ASEAN+3 RTA.     

Assessing Trade Potential in Agricultural Sector of Iran: Application of Gravity Model

This article attempts to assess Iran's trade potential, explore over- and under-trade countries and determine factors affecting export development by using the gravity model. Seventy countries, which are considered the major markets for Iran agricultural products, are divided into 50 developing and 20 developed ones. By using panel data during the period when the export premium was submitted (2002–2005), Iran's agricultural exports were predicted. For this purpose, equations for each group of countries regressed by applying the augmented gravity model. Finally, the results were compared with actual figures. The results showed that Iran was more over-traded with developing countries relative to developed ones. This analysis helps us to determine the proper commercial direction, assess trade potential capacity and explore effective factors on export development such as export premium. Therefore, trade flows can be improved with under-trade countries and will be supported with over-trade ones through proper policies.     

Assessing the Enlargement and Deepening of the European Union

This paper estimates a theoretically‐motivated gravity model to examine the effect of the European Union (EU) on trade and whether the order of entry has affected the trade performance of member countries. Additionally, we analyse the impact of the different phases of EU integration on trade. The results show that both original countries and successive enlargements boost intra‐bloc trade. Moreover, the results suggest that the deepening in the integration process has led to more trade creation among members. Finally, only the latter phase of the European integration process (the single currency) has increased trade with non‐members.     

Financial Integration in East Asia: An Empirical Investigation

The central objective of this paper is to empirically evaluate the degree of linkages among East Asian equity and bond markets. Using data from the IMF’s Coordinated Portfolio Investment Survey (CPIS), we find that intra‐East Asian financial asset holdings of four East Asian countries – Japan, Korea, Hong Kong and Singapore – are larger than the levels predicted by the financial gravity model. However, our analysis suggests that this result is likely to be driven by intra‐regional trade linkages and reflect those linkages. Therefore, the salient implication for regional policymakers is that they should continue to promote intra‐regional financial integration. This paper also aims to analyse the impact of three different types of country‐specific risks – political, economic and financial risks – on investment from the four countries. This analysis yields a clear positive relationship between destination‐country risk, in particular political risk, and capital inflows.     

A Gravity Model Forecast of the Potential Trade Effects of EU Enlargement: Lessons from 2004 and Path‐dependency in Integration

This paper uses a gravity model to forecast the potential impact on trade balances and trade patterns of the 2004 EU enlargement. The results suggest that gross trade creation for the accession economies is about 25 per cent of their 2003 trade. Although membership of the EU creates trade it also results in trade diversion; that is, a declining share of accession country exports and imports with non‐EU15 countries. Overall, the trade balances of the accession countries suffer larger trade deficits after accession due to import growth surpassing export growth. The extent of increase in the trade deficit due to accession is inversely related to the level of integration and income of the new members. Hence integration is path‐dependent and the EU should take this into account when preparing for further enlargements to the Balkans and Southeast Europe.     

EMU and Trade Revisited: Long‐Run Evidence Using Gravity Equations

In this paper, we present evidence of the long‐run effect of the euro on trade for the twelve initial EMU countries for the period 1967–2008 from a double perspective. First, we pool all the bilateral combinations of trade flows among the EMU countries in a panel cointegration gravity specification. Second, we estimate a gravity equation for each of the EMU members vis‐à‐vis the other eleven partners. We apply panel cointegration techniques based on factor models that account for cross‐dependence and structural breaks. Whereas the joint gravity equation provides evidence on the aggregate effect of the euro on intra‐European trade, by isolating the individual countries, we assess which of the member countries have obtained a larger benefit from the euro. The results show that the euro has had a positive though small effect on trade. Belgium and Luxembourg, France and Italy are the countries more benefited from the introduction of the euro. The effects for exports to third countries are in general more moderate, and, with the exception of Greece, there is no evidence of diversion effects.     

对中国—智利自由贸易区贸易效应的引力模型分析

近年来,区域经济一体化的进程不断加快,这是世界经济发展的必然结果。随着中国与拉丁美洲经贸关系的不断发展,中国已和智利、秘鲁和哥斯达黎加三个拉美国家签订了自由贸易协定,为双方的贸易带来了可观的收益,极大地推动了中国参与区域经济一体化的进程。本文在综述国内外相关文献的基础上,以中国与智利的自由贸易协定为例,采用引力模型,定量研究两国的经济一体化程度以及区域经济一体化所创造的贸易效应。     

浅析非洲经济一体化的贸易创造与贸易转移效应

在概述战后非洲一体化发展总体状况的基础上,通过构建理论模型,利用实证分析方法,选择南部非洲发展共同体为研究对象对南部非洲发展共同体的贸易创造和贸易转移问题进行探讨,从而为客观评估非洲经济一体化进程中的静态福利效应提供一种参考。研究结果表明,南部非洲发展共同体并没有发生明显的贸易创造及贸易转移效应,成员国从一体化中获得的福利收益是有限的。     

The Pure Effects of European Integration on Intra‐EU Core and Periphery Trade

This paper analyses the effects of EU integration on intra‐EU trade volumes with a special focus on the evolution of trade within and between the core and the periphery countries. In the early phases of EU integration, there have been sizable trade creation and diversion effects with respect to EFTA countries. Both the creation and the diversion effects of EU membership have declined as the EU and EFTA have integrated. In all phases of EU integration, both core–periphery and intraperiphery growth of trade have experienced stronger positive effects than intracore trade. Hence, the EU enlargements did not cause any kind of intra‐EU ‘peripherality’.     

Trade Expansion of China and India: Threat or Opportunity?

By exploring the export performances and specialisation patterns of China and India, we assess their trade competitiveness and complementarity vis-à-vis each other as well as with the rest of the world. Our analysis indicates that (a) India faces tough competition from China in the third markets especially in clothing, textiles and leather products; (b) there is a moderate potential for expanding trade between the two countries; (c) China poses a challenge for the East Asian economies, the US, and most European countries especially in medium-technology industries; (d) India appears to be a competitor mainly for its neighbouring South Asian countries; (e) complementarity exists between the imports of China and India, and the exports of the US, some European states and East Asian countries, especially Japan, Korea, Malaysia, Singapore and Thailand, implying opportunities for trade expansion; and finally (f) the export structure of China is changing with the exports of skill-intensive and high-technology products increasing and those of labour-intensive products decreasing gradually. This suggests that challenges created by China in traditional labour-intensive products might reduce in the long run.     

The Motor Industry in an Enlarged EU

The motor industry in the ‘First Fifteen’ EU makes an enormous contribution to its economic prosperity. This is manifest in the scale of employment, output, investment, international trade and technological change. The enlargement of the EU will see the full integration of the auto sector in the accession countries with the activities in the West to reinforce its already massive scale. The nature of optimum size and the importance of economies of scale creates a bias to bigness in vehicle manufacture. Hence, the auto industry in the accession countries consists largely of the local operations of transnational companies. As car demand is income elastic the level of sales in the accession countries is relatively small but as the economies expand the potential is enormous. This, together with non‐scaler advantages such as low wage rates, has attracted considerable investment by vehicle firms in the last fifteen years into the accession countries. Various tariff reduction agreements have meant that integration of the East Central European motor industry with Western operations has pre‐dated the current formal enlargement of the EU. The countries that have done particularly well in attracting automotive investment have been Poland, the Czech Republic and, particularly, Slovakia. The recent history of the auto sector in the accession countries has not been without its problems. The collapse of the command economies saw disruption in the market and the decline of the local indigenous car makers. Subsequently this was more than offset by new inward investment. There has been no revival of the local commercial vehicle industry and further restructuring can be expected. The long‐term survival of the auto component sector in the accession countries will depend on how the sector responds to the competitive challenges of free trade and enlargement. However, there are signs that significant high value‐added activities such as vehicle design and development, will be sustainable in East Central Europe. The motor industry in the accession countries will face its own challenges, not least the tendency of the industry to anticipate formal integration. This time it will mean expansion into Eastern Europe. Hence, whilst the location of vehicle plants in the accession countries challenges the traditional centres of manufacture in the West, including ‘the periphery’, in turn they must be alert to even newer competition elsewhere.     

The World Trade Network

This study uses the tools of network analysis to graphically and analytically represent the characteristics of world trade. The structure of the World Trade Network is compared over time, detecting and interpreting patterns of trade ties among countries. The results show that the trading system has become more intensely interconnected, and trade integration at the world level has been increasing, but it is still far from being complete, with the exception of a few areas. At the same time, we observed a strong and increasing heterogeneity in countries’ choice of trade partners, with countries holding very different positions within the network, so that it is very difficult to talk of a representative country in the international trade system. Network indices were also used in a gravity model regression, adding to the explanatory power of the model. Furthermore, the analysis shows that trade policies do play a role in shaping the trade network, and that WTO members are more closely connected than the rest of the world. The structural difference between the extensive and the intensive margin of trade is also highlighted. An important feature of these results is that they pertain to the trading system as a whole, giving a unified view of the system characteristics and complexity.     

Trade and Financial Integration in East Asia: Effects on Co‐movements

In this paper we explore three important areas where deeper trade and financial integration in East Asia can influence: (1) business cycle co‐movements in the region, (2) the extent of risk sharing across countries and (3) price co‐movements across countries. We find evidence that trade integration enhances co‐movements of output but not of consumption across countries. Especially the fact that trade integration does not raise co‐movements of consumption as much as that of output is interpreted as trade integration does not improve the extent of risk sharing. Co‐movements of price arise most significantly as trade integration deepens, lowering the border effects and allowing better opportunities for resource reallocation across countries. In contrast, financial integration demonstrates much weaker evidence of enhancing co‐movements across countries. Deeper financial integration improves price co‐movements weakly but does not enhance output or consumption co‐movements at all. However, since the current level of financial integration in East Asia is quite low, our evidence is too early to firmly determine the role of financial integration.     

State and trends of economic East-West relations — A German view

The trade of the Western industrial states with Eastern Europe has been the object of keen political interest in the past year or two although it accounts for no more than 5–6 p.c. of the total foreign commerce of the OECD countries. The current discussion about the future of the economic relations between East and West focuses on the greatly increased indebtedness of the East European countries to the West. The following review was presented as the introductory paper at a colloquium on the state and trends of East-West relations which was held at the end of February at the invitation of the Senator of Economic Affairs of Hamburg.     

中国服务贸易潜力——基于引力模型的测算

国外使用引力模型研究服务贸易始于2002年,国内研究则起步稍晚,至2009年方有学者致力于此类研究。从使用数据和实证模型两方面看,现有研究都有可进一步拓展的潜力。本文基于引力模型对服务贸易的决定因素进行识别与测算。本文在实证部分采用了基本引力模型,使用4种计量方法。结果显示:贸易双方经济规模、经济发展水平、物理距离和自由贸易区对总服务贸易额和分部门贸易额的影响表现出不同的显著性。     

China＇s Foreign Trade Strategy

Profile of route map In 1949,right after the establishment of the People's Republic of China (PRC),overall economic blockage and embargo imposed by other countries,except the Soviet Union and eastern European countries,separated China from the global economic and trade community.In such a context,China Council for the Promotion of International Trade (CCPIT) was born in May 1952 to facilitate non-governmental trade with other countries,Japan in particular.