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Pattern of trade and European economic integration : an unexpected relation

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  • Fabien Rondeau

    (CREM - 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.

Suggested Citation

  • Fabien Rondeau, 2006. "Pattern of trade and European economic integration : an unexpected relation," Economics Working Paper Archive (University of Rennes & University of Caen) 200614, Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS.
    • Handle: RePEc:tut:cremwp:200614
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    References listed on IDEAS

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    More about this item

    Keywords

    Trade; Growth; Intra-industry trade; Integration;
    All these keywords.

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F02 - International Economics - - General - - - International Economic Order and Integration

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