The disappearance of the border barrier in some European Union countries’ bilateral trade

Abstract

This paper estimates the tariff equivalent of the border barrier in each bilateral trade among European Union (EU) countries. The results show that there are large differences in the border barrier across EU countries’ bilateral trade. In some bilateral trade flows the border barrier has almost disappeared, whereas in other cases it is still equivalent to a 75% tariff. The results also show that some countries have low border barriers in most of their bilateral trade flows with other EU members, whereas other countries persistently present large border barriers.

Notes

¹ Note that, by assumption, t_ij  = t_ji and hence b_ij  = b_ji .

² The natural logarithm of Y^w .

³ Analytically the system is solved as:

subject to .

⁴ It should be pointed out that Austria, Finland and Sweden were not members of the European Union until 1995.

⁵ These figures are also transformed to constant values using, when available, the volume indices provided by the STAN database.

⁶ From the total merchandise trade figure we subtract trade in scrap metal, trade in electricity, gas and water supply and trade in others. When these sectoral data were not available we inputted it using the average share of each sectoral trade in total merchandise trade from the years where the data were available.

⁷ The regional dissagregation matches Eurostat's NUTS 2 classification. We use the average regional GDP in the 1995–1999 period as weight. Regional GDP was obtained from Eurostat's Regio database. As Denmark only provides GDP data on a country-level we defined as regions the four most populated cities and population was used as weight.

⁸ We estimate 45 bilateral border coefficients. However, we present them twice in the table to make it easier to read.