Home Bias and European Integration
Home Bias and European Integration

Summary/Abstract: The article estimates the size of home bias between 28 EU states between 2010 and 2018 and its variance between 17 industries. The assumption of the work is that home bias can be treated as a measure of integration: the smaller it is, the more countries are integrated. The aim of the article is to analyze bilateral trade flows of 28 EU states, and using Poisson pseudo-maximum-likelihood method calculate border effect for trade between these countries. Disaggregation of data into 17 production sectors will help to estimate the border effect more precisely. The methodology of the research is based on the gravity model estimation of panel data for 17 sectors, 28 countries and 9 years.Using gravity model approach, it has been detected that the home bias is still present within the EU; however, it is decreasing with time, proving that the level of integration between states has increased. Another finding of the research is the diversity of home bias between sectors: it varies between 86.48 and 2.58, which can be explained by the difference in the rate of substitution between goods of domestic and foreign origin across industries.

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