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Pattern of trade and European economic integration: an unexpected relation

Fabien Rondeau

Economics Working Paper Archive (University of Rennes & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS

Abstract: In this article, the degree of integration between European countries is linked to the evolution of the pattern of trade. Evolution of the long-run sensitivity between European outputs is estimated by recursive Fully-Modifed Ordinary Least Squares (FM-OLS) and compared to a recursive index of intra-industry trade. Significant correlations are found between integration and intra-industry trade share. Interestingly, correlations have not all the same sign: positive for one group of countries and negative for others. The explanatory variable seems to be the initial intra-industry trade share. In the last section, a Hansen test is computed and confirms a threshold effect of the pattern of trade on economic integration. Finally, the development of the intra-industry trade due to the creation of the European Monetary Union has a positive effect on integration for some countries but also a negative effect on integration for other European countries.

Keywords: Trade; Growth; Intra-industry trade; Integration (search for similar items in EconPapers)
JEL-codes: F02 F4 F43 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-eec and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:tut:cremwp:200614

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