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Could Regional Economic Cooperation Generate Trade Creation and Trade Diversion Effects without Altering Trade Policies of Members? Preliminary Results from a Gravity Application to BSEC

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Disciplines
  • Economics
  • Political Science

Abstract

Dp98-10 Could Regional Economic Cooperation Generate Trade Creation and Trade Diversion Effects without Altering Trade Policies of Members? Preliminary Results from a Gravity Application to BSEC Serdar SAYAN Department of Economics Bilkent University 06533 Ankara, Turkey Ankara, 1998 Discussion Paper No: 98-10 Bilkent University Department of Economics 1 Could Regional Economic Cooperation Generate Trade Creation and Trade Diversion Effects without Altering Trade Policies of Members? Preliminary Results from a Gravity Application to BSEC Abstract Black Sea Economic Cooperation (BSEC) zone formed in 1992 was one of the first formal initiatives that aimed to develop economic cooperation between countries that were once members of two adversary alliances of the Cold War era. Greece and Turkey, the NATO-affiliated members of BSEC, became partners with their formerly communist neighbors: Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Moldova, Romania, Russian Federation and Ukraine. The partnership required cooperation in quite a comprehensive list of areas including trade but without providing a basis for any preferential treatment for trade between members. The purpose of this paper is to consider the BSEC experience in seeking an answer to whether regional economic cooperation in the broader sense could lead to any trade creation/diversion effects even when the cooperating partners do not liberalize their trade policy among themselves and/or harmonize their policy towards third parties. For this purpose, the paper evaluates the effects of BSEC on regional trade flows by investigating, in particular, the magnitude of any trade creating effects BSEC might so far have generated upon regional flows, and tries to assess the significance of the role it might have played in hindering the diverted trade that had been going on among its members that were once partners within the Council of Mutual Economic Assistance (CMEA or COMECON). The empirical part of the investigation is

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