Publication: Bosnia and Herzegovina: Estimation of the Effect of the Agreement on Amendment of and Accession to the CEFTA on Bosnia and Herzegovina Trade Flows and Calculation of Trade Potential
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Date
2019
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2019
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This paper provides an assessment of the trade performance of Western Balkan (WB) countries with the European Union (EU) countries. The particular focus is on Bosnia and Herzegovina's (BiH) trade potential and an estimation of the effects of the Agreement on Amendment of and Accession to the Central European Free Trade Agreement (CEFTA 2006) using gravity equations. The approach taken by Bussière et al. (2005) is used as a base reference to develop the model of BiH trade flows and later on BiH trade potential. Bussière et al. (2005) estimated the potential trade of Central and Eastern European countries using a new measure of trade integration called the trade condition indicator. This indicator is calculated from country-pair specific effects after controlling for the levels of the time-invariant variables, like distance. Fixed effect vector decomposition (FEVD) procedure offers a solution to the problem of estimating time-invariant variables in panel data when at least one variable is correlated with the unobservable unit effect. FEVD is considered as a proper procedure for this application since CEFTA 2006 is considered endogenous and correlated with unobserved unit effect. Applying FEVD it was found that in each WB country imports and exports are below their potential level with the EU. The results suggest that even as BiH moves towards its potential trade levels the trade deficit will remain, albeit at a diminishing level if capacity building for stronger trade policy dialog continues and more opportunities to diversified BiH export are exploit.
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“Hlivnjak, Sandra; Mujabašić, Amra; Fočo-Obeji, Emina; Hamzić, Lejla. 2019. Bosnia and Herzegovina: Estimation of the Effect of the Agreement on Amendment of and Accession to the CEFTA on Bosnia and Herzegovina Trade Flows and Calculation of Trade Potential. © World Bank. http://hdl.handle.net/10986/32178 License: CC BY 3.0 IGO.”
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