Energy Market Integration and Electricity Trade: A gravity model

Joan Batalla, Jordi Paniagua () and Elisa Trujillo
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Joan Batalla: Chair of Energy Sustainability (UB), University of Barcelona.
Elisa Trujillo: Chair of Energy Sustainability (UB), University of Barcelona.

No 1901, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: This paper explores energy trade in the electrical market by proving a solid theoretical model along with a comprehensive empirical analysis. The model rests on standard goods trade gravity models, which we adapt to energy trade in the electrical market. We derive a tractable gravity equation, which we then estimate with standard gravity techniques. We use energy trade ows between European countries to quantify the effect of economic, structural, cultural and institutional variables on energy ows. The results reveal that energy trade determinants are similar to trade in goods, and that standard notion of international economics like comparative advantage emerge in energy economics. However, we observe some distinctive traits. Our results suggest that energy trade ows are mainly driven by demand at the importer due to an increase in economic activity and institutional agreements in the context of energy integration.

Keywords: gravity equation; electricity trade; Energy Market Integration; European single market (search for similar items in EconPapers)
JEL-codes: F20 F21 F23 Q40 Q43 (search for similar items in EconPapers)
Date: 2018-12
New Economics Papers: this item is included in nep-ene and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:eec:wpaper:1901

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