A Stochastic Frontier Analysis of Trade Efficiency for the New EU Member States Implications of Brexit

Implications of Brexit

Marie Stack, Eric Pentecost, Geetha Ravishankar

Research output: Contribution to journalArticle

Abstract

Examining the trade performance for the new European Union (EU) member states is an important issue in the context of the enlargement process – and in a new era of membership contraction with the likely exit of the United Kingdom from the EU. Typically, the degree of trade integration is assessed by comparing actual trade volumes with potential trade volumes projected from the gravity model parameters estimated for a reference group of countries that best represent normal trade relations. This approach, however, does not compare trade levels against a maximum level of trade defined by a stochastic frontier. In this paper, a stochastic frontier specification of the gravity model is used to identify the efficiency of trade integration relative to maximum trade levels. The findings, based on a panel dataset of bilateral exports from 18 Western European countries to the 13 new member states over the 1995-2022 period, indicate a high degree of trade integration close to two-thirds of frontier estimates. Using forecast data for 2017-2022, trade efficiency should remain broadly stable and even increase for the larger countries in the likely post-Brexit phase.
Original languageEnglish
Pages (from-to)35-53
Number of pages19
JournalEconomic Issues
Volume23
Issue number1
Publication statusPublished - 1 Mar 2018

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European Union
Stochastic frontier analysis
Trade integration
Trade volume
Stochastic frontier
Gravity model
European countries
Contraction
Exit
New member states
Enlargement
Reference groups
Bilateral

Bibliographical note

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Keywords

  • Gravity model
  • Stochastic frontier analysis
  • New member states
  • Brexit

Cite this

Stack, Marie ; Pentecost, Eric ; Ravishankar, Geetha. / A Stochastic Frontier Analysis of Trade Efficiency for the New EU Member States Implications of Brexit : Implications of Brexit. In: Economic Issues. 2018 ; Vol. 23, No. 1. pp. 35-53.
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A Stochastic Frontier Analysis of Trade Efficiency for the New EU Member States Implications of Brexit : Implications of Brexit. / Stack, Marie; Pentecost, Eric; Ravishankar, Geetha.

In: Economic Issues, Vol. 23, No. 1, 01.03.2018, p. 35-53.

Research output: Contribution to journalArticle

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