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Is the EU internal market suffering from an integration deficit? Estimating the 'home-bias effect.' CEPS Working Document No. 348, May 2011

Pacchioli, Consuelo. (2011) Is the EU internal market suffering from an integration deficit? Estimating the 'home-bias effect.' CEPS Working Document No. 348, May 2011. [Working Paper]

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    Abstract

    As an alternative to measuring the extent of market integration, ‘home-bias’ indicates the degree to which economic agents ‘over-prefer’ to transact with domestic agents rather than agents from other EU countries. Such an exclusive preference is measured against a benchmark of (ideal) market integration and is called ‘home-bias’. This CEPS Working Document by former CEPS Researcher Consuelo Pacchioli addresses the estimation of a ‘normal trade’ gravity equation to establish the possible existence of home-bias effects in the US market and the EU internal market, which are the two most integrated regions in the world. Estimations based on pooled OLS cross-section analysis, with the novelty of the inclusion of time dummies in order to obtain unique indexes and panel data-fixed effects, both reject the hypothesis of no internal barrier to trade. This shows a tendency to ‘over-trade’ within borders both in the US and the EU. Taking the finding for the US market as a benchmark, a direct comparison with the EU internal market is considered: the estimated results show that an average EU country still trades more within its borders than with other member states – about three to four times as much as a random US state does. A number of explanations are offered for this relatively low level of EU internal market integration.

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    Item Type: Working Paper
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > economic and financial affairs > Single Market > general
    EU policies and themes > Policies & related activities > economic and financial affairs > trade policy
    Subjects for EU documents: UNSPECIFIED
    EU Series: UNSPECIFIED
    ["eprint_fieldname_eusries" not defined]: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > CEPS Working Documents
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 05 May 2011 17:18
    Number of Pages: 31
    Last Modified: 05 May 2011 17:18
    URI: http://aei.pitt.edu/id/eprint/31786

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