FORECASTING EU-ROMANIA TRADE BY GRAVITY ANALYSIS*

This paper attempts to forecast the EU-Romania trade using the gravity approach developed in Ferragina, Giovannetti and Pastore (2005). The trade potential of Romania with five EU members (France, Germany, Italy, Spain and UK) is computed using an “out-of-sample” methodology for the period 1995-2001. The coefficients are taken from panel estimators of the gravity equation relative to intra-EU15 trade. The analysis suggests the existence of an important unexploited trade potential with Romania, which, nonetheless, is not much greater in size than that of the new EU members of Eastern Europe. The potential to actual trade ratio ranges from 2.2 to 2.7 and is sharply declining, suggesting that further dramatic economic integration is to be expected in the near future. Romania’s accession is likely to further push the process of economic integration. (*Previous versions of Ferragina, Giovannetti and Pastore (2005) have been presented at the ETSG, University of Nottingham; at a CNR Study Group on International Trade, Università Commerciale Luigi Bocconi; and in a seminar held at the Romanian Academy of Science in 2004. We thank Lucian Liviu Albu, Paolo Epifani, Rodolfo Helg, Lelio Iapadre, Paolo Malanima, Mariana Nicolae, Elena Pelinescu, Lucia Tajoli and one anonymous referee for useful comments. However, the usual disclaimer applies)