The Effect of the EEC and BETA on European Trade: A Temporal Cross-Section Analysis

Utilizing a cross-sectional trade flow model of the type developed by Hans Linnemann and Jan Tinbergen, this study attempts to isolate empirically the major forces which have shaped European trade relations over the period 1951-67. We first estimate via the use of dummy variables the impact of the European Economic Community (EEC) and the European Free Trade Association (EFTA) on member trade. For each year of the European integration period (1959-67), a crosssectional equation is estimated ancl used to test for the existence and approximate size of the respective integration effects. The equation is also calculated for the eight years prior to the integration period to obtain a clear picture of the forces which were at work before the formation of the EEC. Secondly, a base year equation is used to make projection estimates of the gross trade creation and European trade diversion effects of the two communities.