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Agreements concluded with the MPCs. 10 Therefore, our study attempts to fill in a part
of the existing gap in this important field of study.
Although the goal of our study may look similar to some of the previous studies three
major differences can be identified. First, to study the effectiveness of particular trade
agreements we use the augmented gravity equation that can be directly derived from the
neoclassical as well as new trade theory models that assume incomplete specialization
in production. Second, in addition to the gravity variables in our estimating equations
we control also for the potential effects of various bilateral trade agreements concluded
by the CEE countries / MPCs among themselves as well as with countries located
outside the region. Third, in our study we present not only the averaged estimates of the
effects of preferential trade liberalization in CEE / MPCs obtained for the whole group
but also the estimates obtained for the particular countries in the region.
In contrast to previous studies we find that both the EU Association Agreements as well
as various sub-regional and bilateral trade agreements were effective in promoting trade
of the CEE countries. We also find that while the new EU Association Agreements
increased significantly imports of the MPCs from the EU, they had no impact on their
exports to the EU which can be attributed to the asymmetry in trade liberalization
between the EU and the MENA countries. In particular, liberalization of the EU imports
from the MENA countries was a gradual process that extended over the last thirty years
and there was not much to liberalize in the 1990s while liberalization of the MPC
imports from the EU took place much faster and its scope was much bigger. Moreover,
we find that the estimated impact of the Association Agreements on bilateral trade of
the MPCs differs greatly across countries.
The structure of this chapter is as follows. In the next section we present the analytical
framework used for evaluating empirically the effects of preferential trade
liberalization, followed by the definition of variables and data sources used in our
10
The notable exception is the empirical study by Peridy (2005) who finds that the preferential
agreements with the EU positively influenced bilateral exports of the MPCs to the EU. According to him
the gross trade creation is estimated to be about 20-27% of actual exports depending on model
specification.
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