Gravity Model of Croatian Regional Foreign Trade

Abstract

Application of the Newton’s law of universal gravitation in explaining international trade has proved to be a successful empirical experiment. The use of relatively simple and easy-to-get data, such as the GDP and distance has made the gravity model particularly popular in explaining trade patterns of transitional economies that lack more sophisticated and longer-series data on foreign trade. One of the main characteristics of a small open economy is the importance of international trade which represents the key determinant in country’s economic growth. For that reason, deeper analysis of this type of a problem is essential and foreign merchandise trade of Croatia suits as a perfect candidate for such analysis. Another significant advantage that stems out of the gravity theory is the possibility of evaluating regional patterns of trade.

Keywords: gravity model, Croatian foreign trade, Western Balkans, regional integration

JEL Classification: F15, F41, F47