Badinger, Harald and Breuss, Fritz
What has determined the rapid post-war growth of intra-EU trade?
EI Working Papers / Europainstitut, 48.
Forschungsinstitut für Europafragen, WU Vienna University of Economics and Business, Vienna.
Based on the gravity model by Baier and Bergstrand (2001), we use a static and dynamic panel data approach to estimate the relative contributions of income growth, income convergence, and the reductions in tariffs and trade costs to the growth of intra-EU trade over the period 1960 to 2000. The results suggest that income growth was the major force, accounting for approximately two third of total growth. Trade liberalization still had a sizeable effect, accounting de facto for the rest of growth, while income convergence played only a minor role. Reductions in trade costs had no significant effect on the growth of intra- EU trade. The results turn out as robust against several robustness checks and the use of alternative estimators. (author's abstract)