Lunes 01, septiembre, 2003

Sectoral Border Effects: Analysing Implicit EU Trade Integration

After four decades of a process of economic, political, and cultural organisation, the EU has reached a considerable level of ‘overall integration’. There are however still many obstacles that pre-empt full economic integration. The aim of this paper is to explore the implicit trade obstacles or barriers that still exist among EU members, including the absence of networks and further links. Estimating a gravity-type sectoral specification which includes explicit barriers to trade (tariffs, transportation and transaction costs) in a model for high income OECDs, makes it possible to isolate the implicit EU trade integration effect. This setup allows an examination of both relative integration levels across sectors and the evolution of each sector’s integration across time. We find that, during the period 1977-1999, textiles have been the most integrated sector, and that chemicals and non-metallic products are the least trade integrated sectors in the EU. The ultimate aim is to evaluate these implicit costs by backing them out with regional trade data as the absolute.