Pattern of trade and European economic integration

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–Modified 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: positive for most countries but negative for others. The explanatory variable seems to be the initial intra-industry trade share.

Acknowledgements

I thank Christophe Tavéra, Sébastien Pommier and participants of the seventh annual conference of the European Trade Study Group for helpful comments.

Notes

¹ See Rassekh (2004) for a recent survey.

² See Crespo et al. (2002) for critics of the LP's ratio and Keller (2004) for a recent survey of the literature.

³ ‘Main economic indicators’ database for production series and ‘Monthly International trade’ database for import series.

⁴ The working paper with results of unit root tests is available on the author's website.

⁵ Graphs are not reported in this version but are available on the author's website. They confirm the presence of two breaks.