Disintegration and Trade

The gravity model of trade is utilized to assess the impact of disintegration on trade. The analysis is based on three recent disintegration episodes involving the former Soviet Union, Yugoslavia and Czechoslovakia. The results point to a very strong home bias around the time of disintegration, with intra-union trade exceeding normal trade approximately 43 times in the former Soviet Union and Czechoslovakia, and 24 times in the former Yugoslavia. Disintegration was followed by a sharp fall in trade intensity. Nevertheless, there is a considerable hysteresis in economic relations, with trade flows among the former constituent Republics still between two and 30 times greater than normal trade in 1998.http://deepblue.lib.umich.edu/bitstream/2027.42/39737/3/wp353.pd

Disintegration and Trade

The gravity model of trade is utilized to assess the impact of disintegration on trade. The analysis is based on three recent disintegration episodes involving the former Soviet Union, Yugoslavia and Czechoslovakia. The results point to a very strong home bias around the time of disintegration, with intra-union trade exceeding normal trade approximately 43 times in the former Soviet Union and Czechoslovakia, and 24 times in the former Yugoslavia. Disintegration was followed by a sharp fall in trade intensity. Nevertheless, there is a considerable hysteresis in economic relations, with trade flows among the former constituent Republics still between two and 30 times greater than normal trade in 1998.Gravity model, international trade, disintigration

Foreign Languages and Trade

Cultural factors and especially common languages are well-known determinants of trade. By contrast, the knowledge of foreign languages was not explored in the literature so far. We combine traditional gravity models with data on fluency in the main languages used in EU and candidate countries. We show that widespread knowledge of languages is an important determinant of foreign trade, with English playing an especially important role. Other langauges (French, German, and Russian) play an important role mainly in particular regions. Furthermore, we argue that the effect of foreign langauges on trade may be non-linear. The robustness of our results is confirmed by quantile regressions.

Money Demand and Disinflation in Selected CEECs during the Accession to the EU

A panel data set for six countries (Czech Republic, Hungary, Poland, Romania, Slovakia, and Slovenia) is used to estimate money demand with panel cointegration methods over the recent disinflation period. The basic money demand model is able to convincingly explain the long-run dynamics of M2 in the selected countries. However, money demand is found to have been significantly determined by the euro area interest rates and the exchange rate against the euro, which indicates possible instability of money demand functions in the CEECs. Therefore, direct inflation targeting is an appropriate monetary regime before the eventual adoption of the euro

Integration, disintegration and trade in Europe: Evolution of trade relations during the 1990s

The gravity model of trade is used to assess the economic consequences of new borders, which arose in the wake of break-ups of multinational federations in Eastern Europe. The intensity of trade relations among the constituent parts of Czechoslovakia, Soviet Union and the Baltics was very high around the time of disintegration, exceeding the normal level of trade approximately 40 times. Disintegration has been followed by a sharp fall in trade intensity. On the other hand, the trade liberalization between East and West has lead to gradual normalization of trade relations, and liberalization within CEFTA has reversed the fall in trade intensity among Central European countries. --Gravity Model,International Trade,European Integration,Disintegration

The Endogeneity of optimum currency area criteria, intraindustry trade and EMU enlargement

This paper tests an endogeneity hypothesis of optimum currency area (OCA) criteria (Frankel and Rose, 1998) on a cross-section of OECD countries between 1990 and 1999. The findings indicate that convergence of business cycles relates to intra-industry trade, but has no direct relation between business cycles and bilateral trade intensity. As far as intra-industry trade is positively correlated with trade intensities, this result confirms the OCA endogeneity hypothesis. The endogeneity of OCA linkage criteria implies extensive business cycle harmonization between CEECs and EU countries in the medium term.optimum currency area; EMU; trade; business cycle; CEECs

Trade Diversion in the 'Left-Outs' in the Eastward Enlargement of the European Union

I analyze three scenarios including no Eastward enlargement of the EU and the accession of Central European countries including and excluding Slovakia. The formulation of these scenarios is derived from the evidence on former relations between EU and EFTA as estimated by gravity models for total trade and major SITC one-digit commodity groups. A significant part of Slovakia's extraordinary trade relations with the Czech Republic will diminish if the country does not participate in the first wave of Eastward enlargement of the EU. These export losses can be compensated by export gains to Hungary and Poland.Trade predictions, Gravity model, Eastern enlargement of the EU, Slovakia

Verification of the New Trade Theory in EU's Trade with CEECs

The new trade theory explains several features of the current development of EU's trade with CEECs better than the Heckscher-Ohlin model. In 1997, CEECs participated in the European economy with levels of intraindustry trade comparable to peripheral EU countries. However, this induced increased specialization in EU countries, which contrasts with the development in the previous decades. The development of intraindustry trade is positively related to the growth of wages and negatively to interest rates.New trade theory, Intraindustry trade, Kernel estimates of distribution, Fixed effects model

The Endogenity of the Optimum Currency Area Criteria, Trade, and Labour Market Rigidities: Implications for EMU Enlargement

This paper analyzes two channels of business cycle convergence, which are subsequently applied to the EU acceding countries. First, trade intensity and intra-industry trade is found to induce a convergence of business cycles. This finding confirms the OCA endogeneity hypothesis. Second, labor market rigidities implying differences in transmission mechanisms lower the correlation of business cycles between the countries. Both effects are significant in a cross-section of OECD countries. Furthermore, the net effect implies a comparable degree of business cycle harmonization of Central and Eastern European countries with the EU as for the current members in the medium run.international trade; EMU; unemployment; enlargement

Money Demand and Disinflation in Selected CEECs during the Accession to the EU

A panel data set for six countries (Czech Republic, Hungary, Poland, Romania, Slovakia, and Slovenia) is used to estimate money demand with panel cointegration methods over the recent disinflation period. The basic money demand model is able to convincingly explain the long-run dynamics of M2 in the selected countries. However, money demand is found to have been significantly determined by the euro area interest rates and the exchange rate against the euro, which indicates possible instability of money demand functions in the CEECs. Therefore, direct inflation targeting is an appropriate monetary regime before the eventual adoption of the euro.Money demand; panel unit root tests; panel cointegration; direct inflation targeting; CEECs