What Determines Bilateral Trade Flows?

54 Pages Posted: 22 Nov 2005

See all articles by Michael A. Kouparitsas

Michael A. Kouparitsas

Federal Reserve Bank of Chicago

Marianne Baxter

Boston University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2005

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 on currency union is much smaller than estimates obtained by prior researchers.

Keywords: Gravity equation, Extreme Bounds Analysis, Factor abundance, bilateral trade, currency union

JEL Classification: F10, C23, O24

Suggested Citation

Kouparitsas, Michael A. and Baxter, Marianne, What Determines Bilateral Trade Flows? (October 2005). FRB of Chicago Working Paper No. 2005-11, Available at SSRN: https://ssrn.com/abstract=851464 or http://dx.doi.org/10.2139/ssrn.851464

Michael A. Kouparitsas (Contact Author)

Federal Reserve Bank of Chicago ( email )

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Marianne Baxter

Boston University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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