FREE TRADE AREA IN SOUTHEAST EUROPE: GROWTH
POTENTIALS AND IMPLICATIONS FOR CROATIA
Paper focuses on preconditions, actual trade flows and growth potentials of the Free Trade Zone in
Southeast Europe. Further trade liberalisation and implementation of all 21 bilateral trade agreements
would be important incentive for intra-regional trade, especially within SEE-5, where, according to
gravity model results, there exist situations of “under-trade”. Bilateral trade between Croatia and S&MN
represents such “under-trade” situation that gives large space for Croatian export growth to this market.
On the other hand, trade with B&H is already above the predicted level and it could even fall in the future
because great part of B&H imports was triggered by Western assistance. According to the analysis, the
establishment of the Free Trade Area in SEE gives potentials for an increase in intra-regional trade
(especially SEE-5), but these benefits could be fully reached only by pursuing parallel trade integration
towards the EU in order to avoid trade diversion effect.
Southeast Europe, Croatia, European Union, intra-regional trade, regional cooperation
The paper analyses the group of Southeast European countries in a wider sense, which
comprises Albania, Bulgaria, Bosnia and Herzegovina, Croatia, Macedonia, Romania
and Serbia and Montenegro (known as SEE-7). Sometimes this group of countries
focuses only five economies (SEE-5, excluding Bulgaria and Romania) due to different
bilateral trade and overall political arrangements with the European Union.
These seven SEE countries signed in June 2001 a Memorandum of Understanding on the
establishment of a Free Trade Zone in the region by the end of 2002 based on a network of
bilateral trade agreements. Although the end of 2002 marked as a target for signing all 21
regional trade agreements was missed, but now all agreements are signed and either ratified
N. Vlahiniæ-Dizdareviæ: Free Trade Area in Southeast Europe: Growth Potentials.
Zb. Rad. - Sveuè. u Rij., Ekon. fak., god. 22. Sv. 1 (2004), str. 21-37
Associate professor of the Faculty of Economics University of Rijeka
Article received: 01-07-2004.; Article accepted: 11-10-2004.