Template-Type: ReDIF-Paper 1.0
Author-Name: Geetha Ravishankar
Author name: Marie Stack
Title: The Gravity Model and Trade Efficiency: A Stochastic Frontier Analysis of Potential Trade 
Abstract: The opening up process of the eastern European countries is characterised by an increasing degree of trade integration 
with their Western neigbouring 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 by 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. 
File-URL: http://www.ntu.ac.uk/__data/assets/pdf_file/0020/310286/The-gravity-trade-model-and-trade-efficiency.pdf
File-Format: Application/pdf
File-Function: First version, 2013
Creation-Date: 2013-04
Classification-JEL: C33, F14, F15 
Keywords: Behavioural expectation, rational expectation, bank crisis, indirect inference. 
Handle: RePEc:nbs:wpaper:2013/04