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What Determines Bilateral Trade Flows?

  • Marianne Baxter
  • Michael A. Kouparitsas

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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File URL: http://www.nber.org/papers/w12188.pdf
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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
Note: ITI
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