Bosnia and Herzegovina : Estimation of the Effect of the Agreement on Amendment of and Accession to the CEFTA on Bosnia and Herzegovina Trade Flows and Calculation of Trade Potential

Hlivnjak, Sandra ; Mujabašić, Amra ; Fočo-Obeji, Emina ; Hamzić, Lejla

World Bank, Washington, DC

关键词: FREE TRADE AREA;    TRADE FLOWS;    TRADE POTENTIAL;    GRAVITY MODEL;    FIXED EFFECTS ESTIMATION;   

RP-ID  :  137563

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

This paper provides an assessment of thetrade performance of Western Balkan (WB) countries with theEuropean Union (EU) countries. The particular focus is onBosnia and Herzegovina's (BiH) trade potential and anestimation of the effects of the Agreement on Amendment ofand Accession to the Central European Free Trade Agreement(CEFTA 2006) using gravity equations. The approach taken byBussière et al. (2005) is used as a base reference todevelop the model of BiH trade flows and later on BiH tradepotential. Bussière et al. (2005) estimated the potentialtrade of Central and Eastern European countries using a newmeasure of trade integration called the trade conditionindicator. This indicator is calculated from country-pairspecific effects after controlling for the levels of thetime-invariant variables, like distance. Fixed effect vectordecomposition (FEVD) procedure offers a solution to theproblem of estimating time-invariant variables in panel datawhen at least one variable is correlated with theunobservable unit effect. FEVD is considered as a properprocedure for this application since CEFTA 2006 isconsidered endogenous and correlated with unobserved uniteffect. Applying FEVD it was found that in each WB countryimports and exports are below their potential level with theEU. The results suggest that even as BiH moves towards itspotential trade levels the trade deficit will remain, albeitat a diminishing level if capacity building for strongertrade policy dialog continues and more opportunities todiversified BiH export are exploit.