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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.

Suggested Citation

  • Marianne Baxter & Michael A. Kouparitsas, 2006. "What Determines Bilateral Trade Flows?," NBER Working Papers 12188, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:12188
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    Cited by:

    1. 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, February.
    2. Ostry, Jonathan D. & Ghosh, Atish R., 2016. "On the obstacles to international policy coordination," Journal of International Money and Finance, Elsevier, vol. 67(C), pages 25-40.
    3. Shumilov, Andrei, 2017. "Оценивание Гравитационных Моделей Международной Торговли: Обзор Основных Подходов
      [Estimating gravity models of international trade: a survey of methods]
      ," MPRA Paper 79790, University Library of Munich, Germany.
    4. Resiandini, Pramesti, 2010. "Financial development and trade: evidence from the world's three largest economies," MPRA Paper 25631, University Library of Munich, Germany.
    5. Tomáš Havránek, 2010. "Rose effect and the euro: is the magic gone?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(2), pages 241-261, June.
    6. 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.
    7. Cardamone, Paola, 2007. "A Survey of the Assessments of the Effectiveness of Preferential Trade Agreements using Gravity Models," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 60(4), pages 421-473.
    8. Sally Milton & M A B Siddique, 2014. "Trade Creation and Diversion Under the Thailand-Australia Free Trade Agreement (TAFTA)," Economics Discussion / Working Papers 14-26, The University of Western Australia, Department of Economics.
    9. 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.
    10. 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, March.
    11. Huigang Chen & Alin T 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.
    12. Heuchemer, Sylvia & Kleimeier, Stefanie & Sander, Harald, 2008. "The Geography of European Cross-Border Banking: The Impact of Cultural and Political Factors," Research Memorandum 008, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).

    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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