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What Determines Bilateral Trade Flows?

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  • Marianne Baxter
  • Michael A. Kouparitsas

Abstract

This paper undertakes an exhaustive search for robust determinants of international trade, where "robustness" is tested using three popular empirical methods. The paper is frankly atheoretical: our goal is solely to establish statistically robust relationships. Along the way, however, we relate our results to the empirical results obtained by prior researchers and to the received theory of international trade. We find that robust variables include a measure of the scale of factor endowments; fixed exchange rates; the level of development; and current account restrictions. Variables that are robust under certain methods and sample periods include exchange rate volatility, an index of sectoral similarity, and currency union. However, the estimated coefficient n currency union is much smaller than estimates obtained by prior researchers.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12188.

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Date of creation: May 2006
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Handle: RePEc:nbr:nberwo:12188

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  1. Philippe BACCHETTA & Eric VAN WINCOOP, 1999. "Does Exchange Rate Stability Increase Trade and Welfare ?," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9917, Université de Lausanne, Faculté des HEC, DEEP.
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Cited by:
  1. Resiandini, Pramesti, 2010. "Financial development and trade: evidence from the world's three largest economies," MPRA Paper 25631, University Library of Munich, Germany.
  2. Theo S. Eicher & Christian Henn & Chris Papageorgiou, 2012. "Trade creation and diversion revisited: Accounting for model uncertainty and natural trading partner effects," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(2), pages 296-321, 03.
  3. Katrin Elborgh-Woytek & Julian Berengaut, 2006. "Beauty Queens and Wallflowers--Currency Unions in the Middle East and Central Asia," IMF Working Papers 06/226, International Monetary Fund.
  4. Cardamone, Paola, 2007. "A survey of the assessments of the effectiveness of Preferential Trade Agreements using gravity models," Working Papers 7282, TRADEAG - Agricultural Trade Agreements.
  5. Maria Cipollina & Luca Salvatici, 2010. "Reciprocal Trade Agreements in Gravity Models: A Meta-Analysis," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 63-80, 02.
  6. Huigang Chen & Alin Mirestean & Charalambos G. Tsangarides, 2011. "Limited Information Bayesian Model Averaging for Dynamic Panels with an Application to a Trade Gravity Model," IMF Working Papers 11/230, International Monetary Fund.
  7. Tomáš Havránek, 2009. "Rose Effect and the Euro: The Magic is Gone," Working Papers IES 2009/20, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Aug 2009.
  8. repec:dgr:umamet:2008008 is not listed on IDEAS

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