An Analysis of Trade Relations between the European Union and the Transition Economies of Central and Eastern Europe

An Analysis of Trade Relations between the European Union and the Transition Economies of Central and Eastern Europe

This paper empirically determines the main factors influencing trade flows between the European Union and the transition economies of Central and Eastern Europe. The analysis relies on the estimation of gravity-type equations for both exports and imports. Besides the basic variables that are normally included in a gravity equation, such as the size of the market, population and distance, two additional variables are included capturing the process of liberalization and privatization. Our results indicate that the two transition variables constitute important factors responsible for the moderate level of trade integration between the transition economies of the Black Sea region (BSEC) and the European Union (EU) member-states. This outcome is in direct conflict with the corresponding results for the more advanced transition economies of Central European Countries (CECs) where the particular variables appear insignificant. This is a reflection of the fact that, contrary to the experience of the BSEC countries, transition policies in the CECs have been proceeded much more vigorously. (JEL Classifications: F15, O52, P51)