Effects of Trade Barriers on Trade Potential between the EU and BRICS Countries

Abstract

Trade relations among the developed and developing countries have been significantly affected by globalization process, giving the possibility to create new economic relations and broaden mutual interdependence among countries. The economic transformation of Brazil, Russia, India, China and South Africa (BRICS), new emerging economic giants, during last two decades, offers amazing possibility for producers and consumers from the EU countries to trade. For this reason, the European Union emphasizes the improvement of trade relations with those countries in its new EU trade and investment strategy.

The doctoral thesis offers a comprehensive view of bilateral trade in goods between the European Union (EU) and BRICS countries by the analysis of their mutual trade flows, assessment of their mutual trade policies and estimation of untapped trade potential caused by natural and administrative barriers. For this purpose, the structural gravity model on panel data is used in the empirical part of the doctoral thesis. There are present the most common practices in gravity modelling as well as the most recent findings and technical upgrades to gain unbiased results.

As a result, the validity of gravity equation in its core as well as the augmented version by many time-variant and time-invariant variables version representing various kind of attributes that may affect bilateral trade flows among the EU and BRICS countries, were confirmed. The results also confirmed the general effort for international trade liberalization as a right way to boost production performance and support economic development, although the bilateral trade tariffs still represent a significant barrier to trade. Using the panel gravity approach, several specific effects that may appear in international trade relations such as the Rotterdam effect, a trade diversion or an existence of inter-industry trade, were observed. Finally, a high untapped trade potential was found for the EU producers on the Brazilian, Indian and Russian market, while the potential of China and South Africa is rather fully employed. On the other hand, Chinese and Indian producers have been relatively successful in penetrating the European market, but especially Brazilian and South African producers still keep a high untapped trade potential.