Augmented gravity model: An empirical application to Mercosur- European trade flows
AbstractThis paper applies the gravity trade model to assess Mercosur-European Union trade, and trade potential following the agreements reached recently between both trade blocks. The model ist tested for a sample of 19 countries, the four formal members of Mercosur plus Chile and the fifteen members of the European Union. A panel data analysis is used to disentangle the time invariant country-specific effects and to capture the relationships between the relevant variables over time. We find that the fixed effect model is to be preferred to the random effects gravity model. Furthermore, a number of variables, namely, infrastructure, income differences and exchange rates added to the standard gravity equation, are found to be important determinants of bilateral trade flows.
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Bibliographic InfoPaper provided by EconWPA in its series International Trade with number 0309019.
Length: 23 pages
Date of creation: 10 Sep 2003
Date of revision:
Note: Type of Document - Acrobat PDF; pages: 23 ; figures: none
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Gravity equation; panel data; infrastructure; integration;
Find related papers by JEL classification:
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
This paper has been announced in the following NEP Reports:
- NEP-EEC-2003-09-14 (European Economics)
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