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Potential Trade in Southeast Europe: a Gravity Model Approach

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  • Edward Christie

Abstract

This paper estimates a classical gravity model for trade on aggregate trade volumes between OECD and transition countries. The results are used to analyse and make projections on trade flows into and out of Southeast European countries following scenarios on potential GDP levels and possible membership of institutions. Alternative variables are also tested, namely transport times instead of geographical distance, and GDP in PPP instead of nominal. Replacing distance with transport times does not lead to great improvements in the model's performance. The use of GDP at PPP is presented mainly to try to deal with specific situations where local prices prevail. The striking feature that emerges in Southeast Europe is of flows of extreme values, in some cases far below, but in others far above, what classical gravity model estimates show. The main conclusion is that Southeast Europe can no longer be viewed as a region from the point of view of aggregate trade flows.

Suggested Citation

  • Edward Christie, 2002. "Potential Trade in Southeast Europe: a Gravity Model Approach," wiiw Working Papers 21, The Vienna Institute for International Economic Studies, wiiw.
    • Handle: RePEc:wii:wpaper:21
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    References listed on IDEAS

    as
    1. Jan Fidrmuc & Jarko Fidrmuc, 2003. "Disintegration and Trade," Review of International Economics, Wiley Blackwell, vol. 11(5), pages 811-829, November.
    2. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, vol. 87(Jan), pages 49-63.
    3. Fritz Breuss & Peter Egger, 1999. "How Reliable Are Estimations of East-West Trade Potentials Based on Cross-Section Gravity Analyses?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 26(2), pages 81-94, June.
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    More about this item

    Keywords

    Gravity model; Trade; Southeast Europe; Regionalism; Transport time; Transport costs;
    All these keywords.

    JEL classification:

    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • P27 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Performance and Prospects

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