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Why is trade between the European Union and the transition economies vertical?



Microsoft Word - Paper Segnana.doc UNIVERSITA' DEGLI STUDI DI TRENTO - DIPARTIMENTO DI ECONOMIA _____________________________________________________________________________ WHY IS TRADE BETWEEN THE EUROPEAN UNION AND THE TRANSITION ECONOMIES VERTICAL? Hubert Gabrisch and Maria Luigia Segnana _________________________________________________________ Discussion Paper No. 7, 2002 2 The Discussion Paper series provides a means for circulating preliminary research results by staff of or visitors to the Department. Its purpose is to stimulate discussion prior to the publication of papers. Requests for copies of Discussion Papers and address changes should be sent to: Prof. Andrea Leonardi Dipartimento di Economia Università degli Studi Via Inama 5 38100 TRENTO ITALY 3 Why is Trade between the European Union and the Transition Economies Vertical ? Hubert Gabrisch* and Maria Luigia Segnana** * Halle Institute for Economic Research, Kleine Markerstrasse 8, D-06108 Halle ** Department of Economics, University of Trento, I-38100 Trento Correspondence address: [email protected] 4 Abstract: Trade between the European Union (EU) and the Transition Economies (TE) is increasingly characterised by intra-industry trade. The decomposition of intra-industry trade into horizontal and vertical shares reveals predominantly vertical structures with decisively more quality advantages for the EU and less quality advantages for TE countries whenever trade has been liberalised. Empirical research on factors determining this structure in an EU-TE framework lags behind theoretical and empirical research on horizontal and vertical trade in other regions of the world. The main objective of this paper is therefore to contribute to the ongoing debate on EU-TE trade structures by offering an explanation of vertical trade. We utilise a cross- country approach

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