Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 12: Trade integration in South-East Europe and the trade potential of Croatia
cc sc Boris Vujci´ and Vedran Sosi´ 1 1. INTRODUCTION In this chapter we investigate the degree of trade integration within the South-East European (SEE) region and the trade potential of Croatia. Speciﬁcally, we look at Croatia, Bosnia and Herzegovina, Yugoslavia, Macedonia and Albania, which are all very small economies and which all used to be ‘trade isolated’, being neither candidates for EU accession nor CEFTA members in the 1990s. The trade regime of these countries has in recent years been subject to a debate among policy makers and academics from both within the region and the EU, with the discussion focusing on trade liberalization as a means of enhancing the catching-up process. Yet the discussion has not been very insightful about ‘hard facts’ on the present level of integration within the region and its relationship with the EU, and it has not led to a consensus on how liberalization should proceed. For the purpose of our analysis, we ﬁrst present some stylized facts on Croatian and SEE trade. Second, we analyse the level of trade integration within the region, using such simple tools as the trade openness ratio and trade concentration indices. We try to explain why trade developments in Croatia did not display the canonical transitional behaviour. Then we run a single-country gravity model to get more insights into the trade potential of Croatia. Two scenarios are calibrated in order to determine Croatia’s trade potential with respect to SEE, EU and CEFTA countries. They illustrate the trade...
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