Modelling international trade flows between CEEC and OECD countries

Abstract

This article deals with econometric developments for the estimation of gravity model, which allow to get convergent parameter estimates even when a correlation exists between the explanatory variables and the specific unobservable characteristics of each individual. We implement panel data econometric techniques to characterize bilateral trade flows between heterogeneous economies. Our econometric results based on a sample of 4 Central and Eastern European countries (CEEC-4) and 19 OECD countries over a 18-year period highlight the importance by taking into account the unobservable heterogeneity to obtain a robust empirical specification and unbiased coefficients.

Notes

¹ Hungary, Poland, Bulgaria and Romania, which became new member states of the European Union on May 2004 and January 2007.

² EU-15: Austria, Belgium-Luxemburg, Denmark, England, Finland, France, Germany, Greece, Holland, Ireland, Italy, Portugal, Spain, Sweden; nonEU countries: Australia, Canada, Japan, Switzerland, the United States of America.

³ Moreover, CEEC countries exchange with the EU-15 countries almost 70% of the total trade.

⁴ CEEC and OECD countries.

⁵ Organization for Economic Cooperation and Development.

⁶ See, for instance Bayoumi and Eichengreen (1997), Frankel (1997), Matyas (1997), Wei and Frankel (1998), Rose (2000), Soloaga and Winters (2001), Ghosh and Yamarick (2004), Baier and Bergstrand (2005), Cheng and Wall (2005), Carrère. (2006), Rault and Sova (2007).

⁷Bayoumi and Eichengreen (1997) note that ‘the gravity equation has long been the workhorse for empirical studies of the pattern of trade’.

⁸ See Baldwin (1994), Gros and Gonciarz (1996), Wei and Frankel (1998) and Sapir (2001)

⁹ See for instance, Festoc (1997), Matyas (1997), Rose (2000), Glick and Rose (2002), Egger (2002), Ghosh-Yamarick (2004), Baier and Bergstrand (2005), Cheng and Wall (2005), Carrère (2006) and Peridy (2006).

¹⁰ See Wooldridge (2002, 2005) and Hausman-Taylor (1981).

¹¹ Bulgaria, Hungary, Poland and Romania.

¹² EU-15: Austria, Belgium-Luxemburg, Denmark, England, Finland, France, Germany, Greece, Holland, Ireland, Italy, Portugal, Spain, Sweden; nonEU countries: Australia, Canada, Japan, Switzerland, the United States of America.

¹³ See Peter Egger (2000).

¹⁴ See Badi H. Baltagi (2001).