Kosovo – EU trade relations: a dynamic panel poisson approach

To inform policy making following trade liberalisation between Kosovo and the EU
within the framework of the Stabilisation and Association Agreement, we specify a
gravity model to investigate Kosovo’s trade in goods with 28 EU countries, over the
period 2005-2013. We reconcile competing methodological requirements by using a
dynamic Poisson approach to estimation. Together, persistent trade patterns and an
unfavourable combination of demand and supply elasticities suggest that trade
liberalisation in isolation is not sufficient to promote exports but may need to be
incorporated within a wider policy and institutional framework. In addition, our findings
suggest that trade costs should be a particular focus for policy: distance has a big negative
influence on Kosovo’s exports to EU countries; while diaspora communities promote
Kosovo’s exports to EU markets, most likely because they offset trade costs.