The role of regional economic integrations for trade margins: A case of Croatia

Abstract

The goal of this investigation is to research the development of intensive and extensive trade margins on product-country level data for Croatia during the period 2000–2012. Hypothesis of our paper is that RTAs-induced trade liberalization will have heterogeneous effects on particular product groups with indirect implications on national welfare. Static and dynamic gravity trade models are used on panel data accounting for over 90% of total trade during the observed period. Estimations of the trade gravity model and trade margins showed that while SAA and CEFTA arrangements positively affected different measures of intensive and extensive trade margins, specially exports and imports of consumption products, effects on trade in intermediate and capital goods were relatively subdued. This suggests a tendency for market-seeking rather than efficiency-seeking behaviour of Croatia’s trade sector. When comparing the results for two trade agreements using dynamic model, we find that SAA primarily affected trade in consumption goods while effects of CEFTA are more evenly dispersed across different product groups. Main conclusion of the paper is that Croatia’s policy makers should try to keep the preferential status of Croatia within the CEFTA market in the medium term, focusing on the Croatian economy.

Keywords

• trade margins
• gravity model
• free trade agreements
• Croatia