The Role of Association Agreements Within European Union Enlargement to Central and Eastern European Countries

Abstract

The main goal of regionalization is the creation of free trade areas and the guarantee for countries to accede to a widened market. Many studies dealing with the effects of regional free trade agreements on trade flows already exist in the economic literature and the explosion in the number of regional agreements among countries has recently stressed the key role of regionalization. However, the effects of agreements on trade were sometimes contradictory in those studies. These diverging results can be explained by the potential endogeneity bias of the agreement variable. Our research in this paper aims at reassessing the genuine role of associations. For this matter, we particularly study the association of Central and Eastern European countries (CEEC) with European Union countries. Our econometric analysis based on qualitative choice models highlights in particular why European countries chose to conclude an association agreement with CEEC, and stresses the fact that European Union countries select endogenously the conclusion of association agreements. We are also particularly interested in modeling the effect of the association agreement on export performances between countries, and to quantify its impact. When considering annual data for 4 CEEC and 19 OECD countries (1990-2004), we find a 0.17 positive impact of the association agreement on bilateral exports.

Keywords: regionalization, European integration, qualitative choice models, gravity model

JEL Classification: E61, F13, F15, C25