Trade in a United Nordic: An Analysis of the Potential Trade Effects of Creation a Union Country of the Five Nordic Countries

Abstract: This paper is written to analyze and discuss the internal and external trade effects of uniting the five Nordic countries into one bigger country, in order to find if there are any trade benefits of a unification. The estimation of the potential trade levels and the subsequent analysis will be done using models based upon the gravity theory of trade with data from four of the Nordic and eight other European countries. The result of these estimations support the two hypotheses of the internal trade within the Nordic region will be increasing while the external trade to and from the region will be decreasing upon a unification. Hence, it supports the idea of a unification of the Nordic countries will decrease trade barriers between the Nordic countries which will increase trade between them but this will happen through trade diversion. However, the paper fails to with accuracy predict the extent to which the internal trade will increase and the external will decrease. But, it clearly predicts the overall trade effects will likely not be beneficiary for the region. Hence, the paper finds trade improvements to not be a reason for the Nordic countries to unite.