1992 - ITS IMPACT ON US TRADE - A VAR APPROACH

European economic integration is a landmark event of the last decade of this century. Its impact on the international scene in general, and on international trade in particular will be substantial. Doubts about Europe's intention to continue towards full monetary and political integration, as envisaged in the Maastricht treaty, should not obscure achievements of the Community to this date. While the impact of integration on output and prices of EC members has been the subject of a number of reports, there has been little in the way of estimating the effects of integration on bilateral trade with the United States. To fill this gap in the literature, we specify and estimate a number of vector autoregression (VAR) models of bilateral trade for the USA with a select number of EC members. After testing the outside sample forecasting ability of our models, we forecast trade flows between the USA and four EC countries: France, Germany, Italy and the United Kingdom. The forecasts are made once assuming no change due to integration and then by incorporating the effect of economic integration on the output and price levels of the EC countries.