Central East European Countries' accession into the European Union: role of extensive margin for trade in intermediate and final goods

Abstract

We study the effect on trade in intermediates and final goods of the Central East European Countries' (CEECs) accession into the European Union (EU) for the period 1999-2009. In doing so, we estimate a gravity model that incorporates the extensive margin of trade and accounts for firm heterogeneity. We capture the importance of production networks by including imports of intermediates as a determinant of a country's exports of final goods. We find a positive and significant effect of the CEECs accession on EU trade in intermediate and final goods. Once the extensive margin of trade is accounted for, the effect of the CEECs accession into the EU is higher on trade in intermediate goods than on trade in final goods.