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Nela Vlahiniæ-Dizdareviæ 1 Preliminary communication UDK 339.13.01.42 FREE TRADE AREA IN SOUTHEAST EUROPE: GROWTH POTENTIALS AND IMPLICATIONS FOR CROATIA 2 ABSTRACT 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. Key words: Southeast Europe, Croatia, European Union, intra-regional trade, regional cooperation 1. Introduction 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 21 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 1 Associate professor of the Faculty of Economics University of Rijeka 2 Article received: 01-07-2004.; Article accepted: 11-10-2004.
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22 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 or in the process of ratification. According to theoretical as well as empirical studies, the static effect seen as trade creation could be positive and it is realistic to expect the increase in intra-regional trade in general. The reduction of customs and other trade barriers would reduce the trade costs that would benefit trade within the region.
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