An empirical analysis using panel data gravity models and scenario forecast simulations for the Romanian exports in the context of COVID-19

The paper focuses on the trade performance of Romania, a representative country for the Central and Eastern European region, strongly connected with its European partners in global value chains and thus affected by any change in these countries’ relationships with the rest of the world in general and China in particular. Using panel data gravity models for the 2008-2019 period, we find that Romania’s exports are significantly influenced by the demand of its major trade partners in the EU, and imports from China and the rest of the world. In addition, exports are vulnerable to the effectiveness of the government in relation to the other countries, corruption control and cultural values such as collectivism. We also assess the capacity of Romanian exports to regain their ascending trend displayed before the COVID-19 pandemic by using simulation forecasting scenarios based on the shape of the economic recovery and the type of shock transmission across economies. We observe a sharp decrease in 2020 followed by an important recovery in 2021 in a V-shape scenario and uniform transmission of the pandemic shock in the internal demand and in the foreign trade, or followed by a very slow recovery in 2021 (in a U-shape scenario and non-uniform transmission type in the two previously mentioned elements), especially when the global relation with rest of the world is included.