TRADE FLOWS BETWEEN THE CORE AND THE NEW PERIPHERAL EUROPEAN UNION' AREAS

After the last enlargement towards East, the European Union (EU) established a new peripheral area. In these conditions we propose to identify the degree of divergence of industrial structure between the new peripheral area and the core of the EU (EU-15), by characterizing their trade relations. The question that arises is to find the most appropriate methods to explain much more the trade between the two areas. The aim of this paper is to analyze the trade flows between this two area's countries using some different panel data estimation methods like as Fixed Effect Model (FEM, Random Effect Model (REM, Hausman-Taylor (HT) and Feasible Generalized Least Squares (FGLS). Using HT method to estimate our gravity model, we get unbiased and efficient parameters estimation, even when a correlation exists between the explanatory variables and the specific unobservable characteristics of each individual. Our findings generally support the literature which suggests that country size, difference between Gross Domestic Product per capita, association agreement, political stability, reform progress, landlocked, geographical distance, and real exchange rate may be important drivers that can affect the international trade flows patterns between those two zones.