The trade effects of Albania’s trade agreements with CEFTA members

ABSTRACT

Since the Central European Free Trade Agreement (CEFTA) was signed in 2006, Albanian exports to CEFTA member countries have increased four-fold. Applying a trade growth decomposition methodology, we show that Albanian firms that did not export to CEFTA countries before the agreement account for a large share of this export growth. Exports also increased among goods that were the least traded before the agreement. Estimating a gravity equation, we find that the CEFTA increased Albanian exports between 34% and 144%, depending on how the previous bilateral agreements with CEFTA countries are accounted for. Additional regression analyses conclude that the CEFTA fostered exports through the reduction of tariffs.

KEYWORDS:

• Albania
• trade liberalisation
• CEFTA
• exports

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. These are Albania, Bosnia and Herzegovina, Bulgaria, Croatia, FYR Macedonia, Kosovo, Moldova, Montenegro, Romania and Serbia.

2. The CEFTA is considered a ‘shallow’ trade agreement, as it covers less than 10 policy areas categorised in the database on the Content of Preferential Trade agreements (Hofmann, Osnago, & Ruta, 2017). Its scope is limited compared to other agreements, such as the European Free Trade Agreement (EFTA), EU-Norway or the EU.

3. CEFTA members established the Committee of Trade Facilitation and the Working Group on Exchange of Electronic Information in 2014, and are currently negotiating the terms of Additional Protocols Five (AP5) on trade facilitation and Six (AP6) on the liberalisation of trade in services.

4. For example, when an Albanian firm that previously exported only to FYR Macedonia begins to export to Serbia.

5. The 9.5% reduction in the value of Albanian exports to CEFTA countries in 2009 is much lower than the 22.3% reduction in the value of world exports that happened that year (authors’ calculations, based on data from the WTO database).

6. All amounts are in US dollars.

7. Following Kehoe and Ruhl (2013), we used a three-year average (2003–2005) to compute the value of exports. Note that HS six-digit code products whose export value was zero in all of those years are included in the analysis.

8. We considered the 2013–2015 period.

9. 4845 products had a zero-export value before the CEFTA agreement was signed.

10. Table A1 in the Appendix shows the dates in which the bilateral free trade agreements with future CEFTA members were signed and entered into force.

11. We define agricultural products as goods listed in the Harmonised System classification two-digit chapters 1–15.

12. $Tarif{f}_{jkt}$ is calculated as 1+(ad-valorem tariff /100).

13. Our estimate, 5.25, is very close to the elasticity favoured by Head and Mayer (2014), 5.03.

Additional information

Funding

Asier Minondo gratefully acknowledges financial support from the Spanish Ministry of Economy and Competitiveness (MINECO ECO2016-79650-P and ECO2015-68057-R, co-financed with FEDER) and the Basque Government Department of Education, Language policy and Culture (IT885-16).