The authors are grateful to Eric Pentecost and the Associate Editor of The World Economy for excellent comments and suggestions on earlier versions of the paper and to Martin Bliss for assistance with the data.
The Gravity Model and Trade Efficiency: A Stochastic Frontier Analysis of Eastern European Countries' Potential Trade
Article first published online: 6 FEB 2014
© 2014 John Wiley & Sons Ltd
The World Economy
Volume 37, Issue 5, pages 690–704, May 2014
How to Cite
Ravishankar, G. and Stack, M. M. (2014), The Gravity Model and Trade Efficiency: A Stochastic Frontier Analysis of Eastern European Countries' Potential Trade. World Economy, 37: 690–704. doi: 10.1111/twec.12144
- Issue published online: 7 MAY 2014
- Article first published online: 6 FEB 2014
The opening up process of the eastern European countries is characterised by an increasing degree of trade integration with their Western neighbouring countries. Typically, the degree of East–West trade integration is assessed by comparing actual trade volumes with potential trade volumes projected from the gravity model parameters estimated for a group of countries that best represent normal trade relations. This approach, however, does not compare trade levels against a maximum level of trade feasible for the group of eastern European countries. This paper using a stochastic frontier specification of the gravity model is able to identify the efficiency of trade integration relative to maximum potential levels. The findings, based on a panel data set of bilateral exports from 17 Western European countries to the 10 new member states over the 1994–2007 period, indicate a high degree of East–West trade integration close to two-thirds of frontier estimates, suggesting a low degree of trade resistances.