Ireland’s Trading Potential with Central and Eastern European Countries: A Gravity Study

Using a gravity model, we estimate the magnitude of potential trade flows between Ireland and the five CEEC countries which are currently negotiating accession to the EU. We find that Irish exports were already close to their “normal” level in 1994, but that imports from the CEECs were still less than half of their potential size. The value of estimated potential trade corresponds to 0.8 per cent of Irish GNP. The actual share in 1994 was 0.5 per cent. EU enlargement would raise Ireland-CEEC trade to 1.2 per cent of GNP. The short-term scope for trade expansion therefore appears to be modest. Stronger potential for trade growth emerges in the “long-term” scenario, which assumes partial income convergence of the EU and the CEECs. According to our upper-limit estimate in the convergence scenario, the value of Irish trade with the CEECs could reach 8.3 per cent of Irish GNP in 2020.