Some New Insights into Trade Potential between the EU and Its Mediterranean Partners

This paper provides new insights into the calculation of trade potential between the EU and its Southern and Eastern Mediterranean partners (MPs). It is based on an econometric specification which takes into account some new explanatory variables which are not included simultaneously in the previous studies. These include trade costs (tariffs, NTBs, and logistics costs), factor movement (migration and FDI), as well as governance. In addition, specific estimators are implemented in order to account for zero trade flows, endogeneity and dynamics. The main conclusion of this study is that contrary to some results found in previous studies, MPs have reached their export potential with the EU. It is also shown that there is no specificity of the MP-EU trade potential in comparison with the other main PTAs (NAFTA, MERCOSUR, and ASEAN) which have also reached their trade potential. These results have strong policy implications