The project is supported by the Global Development Network (GDN) providing substantial funding to CERGE-EI to help foster empirical, policy-relevant development research by individuals and institutes in developing countries. These funds are intended to strengthen the regional development networks that form the core of the GDN.

The following project has been financed throughout this scheme during 2011:

No Nation Was Ever Ruined by Trade: South-East European Trade Analysis

The objective of the paper is to analyze the Central European Free Trade Agreement 2006 (CEFTA-2006) impact on trade and provide quantitative comparison with the original CEFTA and with the trade liberalization under the EU integration process. The paper belongs to the strand of the literature analyzing a free trade agreement in a gravity framework, but treating it as being potentially endogenous. We argue that, for the case of CEFTA-2006, not only the economic similarity and geographical proximity forced countries to self-select into a free trade agreement, but also that their will to join EU as soon as possible and, in that way, to prevent further conflicts in the Balkans, acted as a crucial spiritus movens to engage into a free trade agreement. The empirical evidence suggests that CEFTA-2006 exerted positive, significant and large effect on trade in South-East Europe. This funding can be largely attributed to the distracted trade flows in the region over the 1990s, given it was a decade of wars, embargoes, hyperinflation and social unrest. The effect of CEFTA-2006 has been estimated to be larger than the effect of the Stabilization and Association Agreements, which counteracts the concern that the European Union and the South-Eastern European countries formed a ‘hub-and-spoke’ structure in terms of trade. Findings also suggest that CEFTA-2006 in South-East Europe exerted considerably larger influence on trade than the original CEFTA in Central Europe.


The following project has been financed throughout this scheme during 2012:


In the current context of continuous reassessment of the sustainability of the single currency and gradual enlargement of the euro area, the objective of this project is to obtain new insights into the factors that determine the synchronisation of shocks in transition countries vis-à-vis the euro area, which is the main pillar of the optimum currency area theory. This will be conducted in several stages. First, a structural VAR will be employed to estimate supply and demand shocks for transition countries. Second, Kalman filter technique will be used to measure the evolution of shocks similarity between individual transition country and the euro area over time. In the last step, a set of variables will enter a panel framework to explain the shock convergence process in transition countries towards the euro area. Thus, the research will contribute to the previous work in this area in several ways: i) the model that investigates determinants of shock synchronisation will be extended by adding several important omitted variables - those related to structure of trade and policy coordination. In particular, our model differentiates between horizontal and vertical intra-industry trade which has not been considered in any previous empirical work in this area; ii) unlike all previous researches that were done in static panel regression setting, we will employ different and novel econometric technique that is an error correction model in dynamic panel context; iii) this research will also account for the effects of the recent economic turmoil on shock convergence process of transition countries towards the euro area.

UACS Research Seminar Series take place every Monday at 1 pm in Amphiteater 1.
LEMP will host a cocktail to cherish the commencing of its work. At the same time the commencing of ...
Preparing project proposal for international funding Ms. Dona Dimitrova