Greece’s Trade With The Balkan Countries: Is It Too Little?

In this paper we use a gravity model in order to estimate the magnitude of potential trade flows between Greece and nine Balkan countries. We adopt a two stage approach. At the first stage the coefficients of the gravity model for the implemented trade between Greece and thirty trade partners are estimated by using the method of Seemingly Unrelated Regression (SUR). At the subsequent step, we implement a research exercise by incorporating the estimated parameters to a gravity equation of Greece and the Balkan countries. It appears that Greece is “under-trading” with all the countries in the reference sample. The ratio of actual over potential exports/imports is less than unity in all cases. Under-trading is more pronounced in the case of imports, where the actual value approaches almost two per cent of the potential.