Converging in divergent ways: Explaining intra‐industry trade between CESEE countries and the EU‐15

In: Economics of transition, Band 25, Heft 4, S. 625-662

Abstract

AbstractThis paper focuses on intra‐industry trade (IIT) between Central, Eastern and South‐Eastern European (CESEE) countries and the EU‐15. It assesses the determinants of intra‐industry trade by combining a detailed product‐level (HS‐6) trade‐flow database with country‐level structural, monetary and institutional variables. Estimates are obtained with System‐GMM and dynamic fractional response models. Our results suggest that structural factors driving IIT differ in the region, notably perceptions of corruption and the distance in the stock of physical capital from the EU‐15. On the other hand, nominal variables such as the competitiveness of corporate taxation and the flexibility of exchange rate regimes contribute to the increase in intra‐industry trade in the whole region.