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European trade integration in the Baltic Sea Region - A gravity model based analysis

Tiiu Paas and Egle Tafenau

No 331, HWWA Discussion Papers from Hamburg Institute of International Economics (HWWA)

Abstract: The paper explores regional trade integration of the countries involved in the EU eastward enlargement (EU-25) processes distinguishing the possible regional trade clusters within EU-25 that may support integration of the EU-15 and the new member states. We examine whether the gravity equation based on the new trade theory describes trade integration of the EU-25 countries, and whether the results of a gravity model based analysis may be different in the case of the Baltic Sea region (BSR). The gravity models are estimated based on panel data for the years 1993 to 2002. The results of our analysis indicate that the BSR is forming an exception within EU-25. The BSR trade cannot be explained as much with New Trade Theories as in the case of the whole EU. The BSR countries have different factor endowments and the intensive trade relations between the BSR countries are mainly based on comparative advantages.

Keywords: gravity models; international trade; regional integration; Baltic Sea region (search for similar items in EconPapers)
JEL-codes: C5 F15 R1 (search for similar items in EconPapers)
Date: 2005
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