TRADE OPENESS FUNCTIONING TO PROMOTE ECONOMIC PROSPECTS: AN ANALYSIS OF THE NEW EU MEMBER STATES

Abstract

Given the developments in economic theory so far, the European Union (EU) accession process is believed to bring significant benefits to newcomers, especially in terms of fostering their economic growth, which is induced by abolishing import tariffs and other trade barriers, intensifying trade flows and ensuring a more efficient usage of resources. Although empirical evidence on these correlations is mixed, many in the new EU member states and in candidate countries hope that EU membership will pave the way towards their economic prosperity, which would ensure a meaningful reduction in the income gap between new and old EU members. Accordingly, trade liberalisation, which implies lower transaction costs, increased specialisation, scale economy, and competitive pressures, has become a priority, especially for the accessing economies which are traditionally less open in comparison to the economies which first joined the EU. This study aims to assess the impact of trade openness, measured through the dynamics of exports and imports, on the economic growth of the last three member countries to join the EU (Romania, Bulgaria and Croatia) by employing panel data for the period before and after their accession (1997-2017). The results of the study confirm the expansion of the sample countries’ trade flows after the accession, as well as a positive correlation between the dynamics of trade flows and gross domestic product (GDP) growth. Still, it can be concluded that the exploitation of the positive effects of trade openness is conditioned by the level of the countries’ pre-accession economic progress and other determining variables.