Brenton, Paul and Vancauteren, Marc. (2001) The Extent of Economic Integration in Europe: Border Effects, Technical Barriers to Trade & Home Bias in Consumption. CEPS Working Document No. 171, August 2001. [Working Paper]
This paper brings together two important facets of current debates concerning trade policy and trade modelling: the importance of estimated border effects and the impact of technical barriers to trade. Here we try and identify the effect of technical barriers on the imports of EU countries by estimating gravity equations applied to data in which sectors are grouped according to the approach adopted by the EU to the removal of technical barriers (New Approach, Old Approach, mutual recognition) as well as an aggregate of sectors for which technical barriers are deemed to be unimportant. Our results suggest substantial border effects for all groups of sectors except for those subject to mutual recognition. The border effect is mitigated but remains considerable against trade with EU partners. High and persistent border effects are found for sectors where technical barriers are not important suggesting that factors other than policy-induced barriers are important determinants of the intensity of internal relative to external trade flows. The paper discusses the interpretation of these border effects in the context of measuring the extent of economic integration and argues that more information on the nature of preferences and on factors promoting local networks of buyers and suppliers is required before we can proceed to examine the policy implications.
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