Abstract
Using the methodology developed in Kehoe and Ruhl (J Polit Econ 121(2):358–392, 2013), I measure the change in the extensive, or new goods, margin of trade between Austria and the ten new entrants to the European Union in 2004. On average, the new goods account for 56 % of the bilateral trade flow after enlargement. A time series measure shows growth in the new goods margin coincides with the period surrounding the 2004 enlargement, which provides evidence on the importance of the role played by the new goods margin in the growth in trade during a trade liberalization.
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Notes
Bulgaria and Romania would join later on January 1, 2007. I only consider the countries admitted during the 2004 enlargement in this paper’s analysis.
Of course, these margins can be decomposed even further, as in Cassey and Schmeiser (2013), which analyzes exports along five margins: newly exported products, products exiting the market, and continuously traded products to same, new, and lost markets. Trade growth can also be analyzed at the firm level, requiring firm-level data. The equivalent intensive margin might be sales of firms already exporting to a market, whereas the extensive margin would measure the sales of new entrants to the market. Firm-level margins are particularly relevant for heterogeneous firm models \(\grave {a}\) la Melitz (2003).
And, so, on average, growth in the intensive margin accounts for 22 % of the overall trade growth.
Milner and Sledziewska (2008) finds a similar result but focuses only on the case of Poland.
Dividing my discussion into bordering and non-bordering countries is somewhat artificial, but I make the division for both stylistic reasons and space considerations. I only show detailed results for Austria’s immediate neighbors.
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Acknowledgments
I thank participants at the 2015 Midwest Economics Association Conference and the 2015 International Trade and Finance Association Conference for their suggestions and comments. I also thank a referee for comments leading to substantial improvements in the paper. Financial support from the BB&T Center for the Study of Capitalism at Wake Forest University is gratefully acknowledged. Caitlin Dourney provided valuable research assistance.
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Appendix
Appendix
1.1 A.1 Zeros
As I describe in the body of the paper, the methodology I use is designed to address some of the shortcomings with using fixed cutoffs in constructing the set of non-traded goods. Nonetheless, Table 3 reports the number of goods with zero trade value in the base period for each of the twenty trade flows I consider and the share of trade in 2009 they come to represent. On average, the zeros in the base period account for 34 % of the trade flows after EU enlargement. The range, however, is great, from 11 % of Austrian imports from the Czech Republic to 74 % of Austrian imports from Cyprus.
1.2 A.2 5 % Bins
In this section, I conduct a robustness check of the results by redoing the entire analysis of the paper using 5 % bins, i.e. the set of least traded goods now consists only of the smallest goods by trade volume that make up 5 % of the trade flow in the base period. I do not reproduce all the figures from the paper for space considerations. Tables 4 and 5 present the results for all twenty bilateral trade flows I consider in the paper. Using 5 % bins does not change the results qualitatively, but the magnitudes of the changes in the new goods margins are shifted down to reflect the smaller size of the 5 % bins. Whereas, on average, the new goods account for 56 % of the trade flow after EU enlargement using 10 % bins, using 5 % bins drops this measure down to 49 %. A significant share of the trade flows are accounted for by these least least traded goods.
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Dalton, J.T. EU Enlargement and the New Goods Margin in Austrian Trade. Open Econ Rev 28, 61–78 (2017). https://doi.org/10.1007/s11079-016-9399-7
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DOI: https://doi.org/10.1007/s11079-016-9399-7