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Gravity approach for exploring Baltic Sea regional integration in the field of international trade

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  • Paas, Tiiu
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    Abstract

    The paper is inviting a reader to think to what extent we can use the knowledge resulting from laws of nature for exploring economic processes. In order to look for the answers on this question, the paper is going to explore international trade flows between the Baltic Sea region countries using a gravity approach. Attention is paid to analyzing forces that attract foreign trade flows and to exploring the influence of distance as an indicator that expresses both transportation costs and cultural proximity of the countries. The results of modeling support the statement that the size of economy has statistically significant and positive influence on the bilateral trade relations of the region. The influence of economic development level that is expressed by GDP per capita is statistically insignificant. In the case of the Baltic regional integration, distance is expressing most significantly cultural proximity and historical relationship between the countries. The regional integration effect in trade is inherently larger for small countries. Small economies in transition have to look for a regional niche to penetrate into the international market. --

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    Bibliographic Info

    Paper provided by Hamburg Institute of International Economics (HWWA) in its series HWWA Discussion Papers with number 180.

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    Date of creation: 2002
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    Handle: RePEc:zbw:hwwadp:26379

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    Keywords: International trade; gravity models; Baltic Sea region;

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    References

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    1. Deardorff, A.V., 1995. "Determinants of Bilateral Trade : Does Gravity Work in a Neoclassical World?," Papers 95-05, Michigan - Center for Research on Economic & Social Theory.
    2. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    3. Simon J. Evenett & Wolfgang Keller, 2002. "On Theories Explaining the Success of the Gravity Equation," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 281-316, April.
    4. James Harrigan, 2001. "Specialization and the volume of trade: do the data obey the laws?," Staff Reports 140, Federal Reserve Bank of New York.
    5. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
    6. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June.
    7. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    8. Helpman, Elhanan, 1981. "International trade in the presence of product differentiation, economies of scale and monopolistic competition : A Chamberlin-Heckscher-Ohlin approach," Journal of International Economics, Elsevier, vol. 11(3), pages 305-340, August.
    9. Wang, Z.K. & Winters, L.A., 1992. "The Trading Potential of Eastern Europe," Discussion Papers 92-21, Department of Economics, University of Birmingham.
    10. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-81, August.
    11. Lancaster, Kelvin, 1980. "Intra-industry trade under perfect monopolistic competition," Journal of International Economics, Elsevier, vol. 10(2), pages 151-175, May.
    12. Baldwin, Richard, 1993. "The Potential for Trade Between the Countries of EFTA and Central and Eastern Europe," CEPR Discussion Papers 853, C.E.P.R. Discussion Papers.
    13. Bergstrand, Jeffrey H, 1990. "The Heckscher-Ohlin-Samuelson Model, the Linder Hypothesis and the Determinants of Bilateral Intra-industry Trade," Economic Journal, Royal Economic Society, vol. 100(403), pages 1216-29, December.
    14. Gros, Daniel & Gonciarz, Andrzej, 1996. "A note on the trade potential of Central and Eastern Europe," European Journal of Political Economy, Elsevier, vol. 12(4), pages 709-721, December.
    15. Paul Krugman, 1998. "Space: The Final Frontier," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 161-174, Spring.
    16. Helpman, Elhanan, 1987. "Imperfect competition and international trade: Evidence from fourteen industrial countries," Journal of the Japanese and International Economies, Elsevier, vol. 1(1), pages 62-81, March.
    17. Cees van Beers & Guido Biessen, 1996. "Trade Possibilities and Structure of Foreign Trade: The Case of Hungary and Poland," Comparative Economic Studies, Palgrave Macmillan, vol. 38(2-3), pages 1-19, September.
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    Cited by:
    1. Antonis Adam & James McHugh & Theodora Kosma, 2003. "Trade Liberalization Strategies," IMF Working Papers 03/239, International Monetary Fund.
    2. Lammers, Konrad, 2002. "Die Osterweiterung aus raumwirtschaftlicher Perspektive : Prognosen regionalökonomischer Erfahrungen aus der bisherigen Integration in Europa," HWWA Discussion Papers 195, Hamburg Institute of International Economics (HWWA).
    3. Laaser, Claus-Friedrich & Schrader, Klaus, 2003. "Neue Partner in Europa : der baltische Außenhandel im Umbruch," Open Access Publications from Kiel Institute for the World Economy 3128, Kiel Institute for the World Economy (IfW).
    4. Isabel Proença & Maria Fontoura & Enrique Martínez-Galán, 2008. "Trade in the enlarged European Union: a new approach on trade potential," Portuguese Economic Journal, Springer, vol. 7(3), pages 205-224, December.
    5. Enrique Martínez-Galán & Maria-Paula Fontoura & Isabel Proença, 2005. "Trade Potential In An Enlarged European Union: A Recent Approach," International Trade 0508011, EconWPA.

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