East-West integration in the European Union: an appraisal

The strong reorientation of trade from East to West, together with a rapid growth of trade between the EU and the Central and Eastern European countries (CEECs), led to a strong integration between Eastern andWestern Europe. It then seems relevant to ask whether this integration process is completed. This paper uses a gravity model to assess the "theoretical" trade, or "potential trade", between the EU-15 and the CEECs. The gravity equation is estimated on a panel data of EU-15 countries over the period 1990-2005, using the HAUSMAN-TAYLOR (1981) instrumental variable method. Our principal results show that the CEECS managed to fill the main part of the gap in their trade with EU; on the West side, Germany is the most integrated country with CEECS; and on the East side, central eastern countries have filled the gap more than others.