East-West Trade Before the EU-expansion - A Gravity Model Analysis

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: When the EU expanded to include ten new countries, the popular opinion was that this would inevitably lead to large increases in trade flows between eastern and western Europe. However, economists have studied the potential for increased trade between the two regions since the fall of the Berlin wall, and much of the evidence indicates that the EU already had a very good bilateral trade relationship with all of the new EU- members as early as the mid-nineties. This, coupled with the fact that the EU already is such an open market, and that the accession agreements had granted the future members even better access, indicates that the popular opinions might be incorrect. This paper investigates the question by using the gravity model of trade, and concludes that the evidence is somewhat unclear, which in itself attests to the success of pre-accession trade integration efforts.

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