Asymmetries in Heterogeneous Integrated Areas: Evidence from Intra-EU Sectoral Trade

Abstract

This paper estimates gravity models for both directions of trade between the EU-15 and the CEEC-10. The two groups form a heterogeneous integrated area (EU-27) with respect to country size, income levels, relative factor endowments and a different history of economic systems. The estimation was conducted on industries with different degrees of scale economies and factor-intensities in the presence of both spatial (distance and borders) and non-spatial (Eastern enlargements and Euro membership) trade costs. The results highlight the asymmetry in intra-bloc trade when the latter is heterogeneous: country size, income, factor endowments and the various trade barriers or facilitators are found to be significant determinants of intra-EU trade but to an extent that is country and industry-specific. The results also show how this heterogeneity eliminates the equivalence between exports and imports as the dependent variable in gravity models and makes the results sensitive to the definition of the bilateral flows to be estimated.