Trade creation and diversion: effects of EU enlargement on agricultural and food products and selected Asian countries

  • M. Bruna Zolin
  • Utai Uprasen
Original Paper


Based on estimation of the gravity equation, this article aims to scrutinise the trade effects emanating from the economic integration of the European Union (EU) by focusing on the trade diversion and trade creation effects of the fifth EU enlargement on 12 groups of agricultural and food products. This paper analyses the changes due to the EU’s enlargement of trade patterns in the agricultural and food sectors among the EU member states and between EU and non-EU countries as well as the effects of the enlargement on exports of agricultural and food products from selected Asian countries to the EU market. Our analysis shows no decline in exports from EU to non-EU countries. Trade creation effects are significantly high for 4 product groups: seafood, woody plants, beverages and tobacco, and animal and vegetable materials. However, trade diversion effects are found in animal and vegetable oils and textile fibres. Moreover, the economic integration has had no significant effect on exports from Asian countries, namely agricultural and food products. The data of 38 countries cover the period 1999–2015.


  1. Abbassi A, Bonroy O, Gervais JP (2008) Dairy trade liberalization impacts in Canada. CJAE 56(3):313–335. Google Scholar
  2. Abler D, Banse M, Kulper M, Roza P, Santuccio F (2009) EU Agricultural trade relations with Asian countries, JRC Scientific and Technical Reports, European CommissionGoogle Scholar
  3. Anderson JE (1979) A theoretical foundation for the gravity equation. AER 69(1):106–116Google Scholar
  4. Anderson JE, Wincoop EV (2003) Gravity with gravitas: a solution to the border puzzle. AER 93(1):170–192CrossRefGoogle Scholar
  5. Auboin M, Ruta M (2011) The relationship between exchange rates and international trade: a review of economic literature, Staff Working Paper ERSD-2011-17, WTOGoogle Scholar
  6. Bach CF, Frandsen SE, Jensen HG (2000) Agricultural and economy—wide effects of European enlargement: modelling the common agricultural policy. JAE 51(2):162–180. Google Scholar
  7. Banse M (2000) Macroeconomic implications of the EU accession. In: Tangerman S, Banse M (eds) Central and Eastern European agriculture in an Expanding European Union, CAB InternationalGoogle Scholar
  8. Banse M, Munch W, Tangermann S (2000) Eastern enlargement of the European Union: a general and partial equilibrium analysis. Contributed paper at XXI International Conference of Agricultural Economics (IAAE), BerlinGoogle Scholar
  9. Bartošová D, Bartová L, Fidrmuc J (2007) Implications of EU enlargement for the new member states, Agri-food Trade Working Paper. 07/10, TRADEAGGoogle Scholar
  10. Bergstrand JH (1985) The gravity equation in international trade: some microeconomic foundations and empirical evidence. REStat 67(3):474–481Google Scholar
  11. Bergstrand JH (1989) The generalized gravity equation, monopolistic competition, and the factor-proportions theory. International Trade. REStat 71(1):143–153Google Scholar
  12. Carrère C (2006) Revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model. EER 50(2):223–247. Google Scholar
  13. ChinaAg Consulting (2018) Gateway to China: Hong Kong re-exports of agricultural good. Accessed 20 Feb 2018
  14. Dai M, Yotov YV, Zylkin T (2014) On the trade-diversion effects of free trade agreements. Econ Lett 122(2):321–325. CrossRefGoogle Scholar
  15. Deardorff AV (1998) Determinants of bilateral trade: does gravity work in a neoclassical world? In: Frankel JA (ed) The regionalization of the world economy, The University of Chicago Press, Chapter URL: pp 7-32. Accessed 20 Feb 2017
  16. Devadoss S, Sridharan P, Wahl T (2009) Effects of trade barriers on U.S. and World Apple Markets. CJAE 57(1):55–73. Google Scholar
  17. Drabik D, Pokrivcak J, Ciaian P (2007) Trade creation and diversion in the enlarged EU market: evidence for agricultural trade in Slovakia. Czech J Econ Financ 57(9–10):433–447Google Scholar
  18. Enke S (1951) Equilibrium among spatially separated markets: solution by electric analogue. Econometrica 19(1):40–47CrossRefGoogle Scholar
  19. European Commission (2011) The CAP in perspective: from market intervention to policy innovation, Agricultural Policy Perspectives BriefGoogle Scholar
  20. Frandsen SE, Gersfelt B, Jensen HG (2003) The impacts of redesigning European agricultural support. Rev Urban Reg Dev Stud 15(2):106–131. CrossRefGoogle Scholar
  21. Frankel JA (1997) Regional trading blocs in the world economic system. Institute for International Economics, Washington, DCGoogle Scholar
  22. Grant W (1997) The common agricultural policy. Macmillan Press Ltd., BasingstokeCrossRefGoogle Scholar
  23. Head K, Mayer T (2014) Gravity equations: workhorse, toolkit, and cookbook. In: Gopinath G, Helpman E, Rogoff K (eds) Handbook of international economics, vol 4. Elsevier, AmsterdamGoogle Scholar
  24. Herok A, Lotze H (2000) Implications of an EU eastern enlargement under a new common agricultural policy. J Policy Model 22(6):661–690. CrossRefGoogle Scholar
  25. Indexmundi (2018) Agriculture, Thailand palm oil production by year. Accessed 15 Feb 2018
  26. Isard W (1954) Location theory and trade theory: short-run analysis. QJE 68:305–322CrossRefGoogle Scholar
  27. Kahouli B, Maktouf S (2015) Trade creation and diversion effects in Mediterranean area: econometric analysis by gravity model. J Int Trade Econ Dev 24(1):76–104. CrossRefGoogle Scholar
  28. Krugman P (1991) Is bilateralism bad? In: Helpman E, Razin A (eds) International Trade and Trade Policy. The MIT Press, Cambridge, LondonGoogle Scholar
  29. Lin L (2006) Spatial equilibrium model on regional analysis for the trade liberalization of fluid milk in Taiwan. In: Gabrys B, Howlett RJ, Jain L (eds) Knowledge-based intelligent information and engineering systems. KES 2006. Lecture Notes in Computer Science, vol 4253. Springer, Berlin, HeidelbergGoogle Scholar
  30. Magee C (2008) New measures of trade creation and trade diversion. JIE 75(2):349–362. Google Scholar
  31. Martínez-Zarzoso I, Nowak-Lehmann DF, Horsewood N (2009) Are regional trading agreements beneficial? Static and dynamic panel gravity models. N Am J Econ Financ 20(1):46–65. CrossRefGoogle Scholar
  32. Samuelson PA (1952) Spatial price equilibrium and linear programming. AER 42(3):83–303Google Scholar
  33. Santos Silva JM, Tenrero S (2009) Comments on the log of gravity revisited, Manuscript, London School of EconomicsGoogle Scholar
  34. Santos Silva JMC, Tenreyo S (2006) The log of gravity. REStat 88(4):641–658Google Scholar
  35. Sarker R, Jayasinghe S (2007) Regional trade agreements and trade in agri-food products: evidence for the European Union from gravity modeling using disaggregated data. Agric Econ 37(1):93–104. CrossRefGoogle Scholar
  36. Sun L, Reed MR (2010) Impacts of free trade agreements on agricultural trade creation and trade diversion. Am J Agric Econ 92(5):1351–1363CrossRefGoogle Scholar
  37. Swinnen JFM (1996) Endogenous price and trade policy development in Central European agriculture. Eur Rev Agric Econ 23(2):133–160CrossRefGoogle Scholar
  38. Takayama T, Judge GG (1971) Spatial and temporal price and allocation models. North-Holland Pub. Co, AmsterdamGoogle Scholar
  39. Tangermann S (1995) Eastward enlargement of the EU: will agricultural policy be an obstacle?, Intereconomics, ISSN 0020-5346, Nomos Verlagsgesellschaft, Baden-Baden, 30, Iss 6:277284.Google Scholar
  40. Tangermann S, Josling TE (1994) Pre-accession agricultural policies for Central Europe and the European Union, Study commissioned by DGI of the European Commission, BrusselsGoogle Scholar
  41. Tinbergen J (1962). Shaping the world economy: suggestions for an international economic policy, Appendix VI. : The Twentieth Century Fund, New YorkGoogle Scholar
  42. Urata S, Okabe M (2014) Trade creation and diversion effects of regional trade agreements: a product-level analysis. World Econ 37(2):267–289. CrossRefGoogle Scholar
  43. Viner J (1950) Customs union theory. Carnegie Endowment for International Peace, New YorkGoogle Scholar
  44. World Bank (2016) Vietnam development report 2016 transforming Vietnamese agriculture: gaining more from less. Available at Accessed 26 June 2017
  45. Yang S, Martinez-Zarzoso I (2014) A panel data analysis of trade creation and trade diversion effects: the case of ASEAN–China Free Trade Area. China Econ Rev 29:138–151. CrossRefGoogle Scholar

Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of EconomicsCa’ Foscari University of VeniceVeniceItaly
  2. 2.Division of International and Area Studies School of Humanities and Social SciencesPukyong National UniversityBusanKorea

Personalised recommendations