Abstract
Based on estimation of the gravity equation, this article aims to scrutinise the trade effects emanating from the economic integration of the European Union (EU) by focusing on the trade diversion and trade creation effects of the fifth EU enlargement on 12 groups of agricultural and food products. This paper analyses the changes due to the EU’s enlargement of trade patterns in the agricultural and food sectors among the EU member states and between EU and non-EU countries as well as the effects of the enlargement on exports of agricultural and food products from selected Asian countries to the EU market. Our analysis shows no decline in exports from EU to non-EU countries. Trade creation effects are significantly high for 4 product groups: seafood, woody plants, beverages and tobacco, and animal and vegetable materials. However, trade diversion effects are found in animal and vegetable oils and textile fibres. Moreover, the economic integration has had no significant effect on exports from Asian countries, namely agricultural and food products. The data of 38 countries cover the period 1999–2015.
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Notes
The EU’s growth encountered its first major obstacle on June 23, 2016, when the UK voted to leave the EU, the first member state to use a previously untouched release clause.
The enlargement of the EU eastwards could be viewed as a reaction to the fall of the Berlin Wall and disintegration of the states formerly under Soviet influence.
We consider regional trade agreement and free trade agreement to be synonymous.
In non-EU countries, we include our selected Asian countries.
Indonesia, Malaysia and Thailand are members of the Association of Southeast Asian Nations (ASEAN) and the World Trade Organization (WTO).
The reason is that a robust result is still obtained although the heteroscedasticity presents in the estimation. In addition, the fixed effects method is employed to check for the multilateral resistance terms (Anderson and Wincoop 2003).
In addition to the FE-PPML method, the gravity equation was also estimated by using three additional techniques to improve the robustness of the empirical results: the multinomial Poisson maximum likelihood (MPML) technique, panel fixed effect model (FE) and panel random effect model (RE). The MPML technique is adopted based on the suggestion of Head and Mayer (2014). Accordingly, the dependent variable will be the export value for the FE-PPML method, market share of the product for the MPML technique and ln(1 + export) for the FE and RE models, respectively.
Notably, the findings on trade creation and trade diversion effects from the FE-PPML method are in line with the empirical results from the MPML, FE and RE techniques, in general. For instance, based on Table 2, the FE-PPML method indicates the existence of trade diversion in textile fibres (− 0.68% in net trade effects), but the trade diversion in the same industry is also revealed in the other three techniques, although each method produces slightly different values of net trade effects (− 11, − 49 and − 49% for the MPML, FE and RE models, respectively). The consistency in trade creation and trade diversion from the estimation of the four techniques is also displayed in the other industries. See Appendix-1 for the related details.
Hong Kong is not a big producer of agricultural commodities but a great re-exporter of these products. For simplicity, in our work, live animals include meat and dairy products. The percentage in Table 3 could refer to meat and dairy products that are generally not perishable (ChinaAg Consulting (2018))
The results from the MPML, FE and RE models are in line with the FE-PPML method. See Appendix 1.
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Zolin, M.B., Uprasen, U. Trade creation and diversion: effects of EU enlargement on agricultural and food products and selected Asian countries. Asia Eur J 16, 351–373 (2018). https://doi.org/10.1007/s10308-018-0508-7
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DOI: https://doi.org/10.1007/s10308-018-0508-7