The Gravity Model as a Tool for the Analysis of International Trade
DOI:
https://doi.org/10.15678/ZNUEK.2015.0941.0508Keywords:
Western Balkans, gravity model, international trade, trade determinantsAbstract
The aim of the paper is to determine whether a standard gravity model of trade can work effectively or if a need exists to supplement it with additional measures of "distance". The region of the Western Balkans from 1995 to 2012 was studied. The estimation results of the standard model are compared to the results of the model augmented by variables: border effect, war and post-war effects, minorities, difference in development, religious and language distance, FTA and FDI stock. In order to check for robustness of the results, apart from "pooled" type estimation, models with random effects, one-way and two-way fixed effects were estimated. A model with alternative explanatory variables was also considered. The findings show that there are a number of trade determinants specific to this region, which need to be included in the model. The most important are: similarities in language and religious structures, wars and free trade agreements.Downloads
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