New Member States' Trading Potential Following EMU Accession: A Gravity Approach

Abstract

The purpose of this paper is to look at implications of the EMU accession on international trade flows of the new member states with members of the enlarged EU. I begin with the evaluation of an early impact of the EMU on trade based on a gravity model. The results are then employed in the calculation of potential levels of trade of the Central and East European countries. The results show a high degree of trade integration  between most of the new member states and the EU except for Latvia, Lithuania and Poland. In trade among the new member states, potential trade flows by far exceed actual levels for all countries except the Czech Republic and Slovakia.