European Integration, Intra-industry Trade in Vertically Differentiated Products and the Balkan Countries

The aim of this paper is to examine the relation between the integration process and the intensity of intra-industry trade between two countries of different levels of development. Our theoretical model and results indicate that trade liberalization and the establishment of the Free Trade Areas between the Balkan countries and the EC have led to the growth of the intra-industry trade between Greece—EC member state—and those countries. The main instruments of this process have been the Europe Agreements and the Stabilization and Association Agreements between the Balkan countries and the EC. The paper presents a model in vertically differentiated products in a Free Trade Area context and proceeds to depict the intensity of intra-industry trade between Greece and the Balkan countries.