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
This paper provides an assessment of the trade performance of Western Balkan (WB) countries with the European Union (EU) countries. The particular focus is on Bosnia and Herzegovina's (BiH) trade potential and an estimation of the effects of t...
| Main Authors: | , , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/381491563201831802/Bosnia-and-Herzegovina-Estimation-of-the-Effect-of-the-Agreement-on-Amendment-of-and-Accession-to-the-CEFTA-2006-on-Trade-Flows-and-Calculation-of-Trade-Potential http://hdl.handle.net/10986/32178 |
| Summary: | This paper provides an assessment of the
trade performance of Western Balkan (WB) countries with the
European Union (EU) countries. The particular focus is on
Bosnia and Herzegovina's (BiH) trade potential and an
estimation of the effects of the Agreement on Amendment of
and Accession to the Central European Free Trade Agreement
(CEFTA 2006) using gravity equations. The approach taken by
Bussière et al. (2005) is used as a base reference to
develop the model of BiH trade flows and later on BiH trade
potential. Bussière et al. (2005) estimated the potential
trade of Central and Eastern European countries using a new
measure of trade integration called the trade condition
indicator. This indicator is calculated from country-pair
specific effects after controlling for the levels of the
time-invariant variables, like distance. Fixed effect vector
decomposition (FEVD) procedure offers a solution to the
problem of estimating time-invariant variables in panel data
when at least one variable is correlated with the
unobservable unit effect. FEVD is considered as a proper
procedure for this application since CEFTA 2006 is
considered endogenous and correlated with unobserved unit
effect. Applying FEVD it was found that in each WB country
imports and exports are below their potential level with the
EU. The results suggest that even as BiH moves towards its
potential trade levels the trade deficit will remain, albeit
at a diminishing level if capacity building for stronger
trade policy dialog continues and more opportunities to
diversified BiH export are exploit. |
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