DETERMINANTS OF THE BILATERAL TRADE FLOWS OF NORTH MACEDONIA– A GRAVITY MODEL APPROACH

Katerina Toshevska-Trpchevska,Elena Makrevska Disoska,Jasna Tonovska,Irena Kikerkova

doi:10.17818/diem/2021/1.10

Katerina Toshevska-Trpchevska, Elena Makrevska Disoska

Open Access

https://doi.org/10.17818/diem/2021/1.10

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Abstract

The paper makes an indetail overview of the structure of the trade exchange of goods of Macedonia and explores the determinants of its bilateral trade flows using the gravity model. The analysis includes data on 40 trade partners of Macedonia in the period from 2005-2019. The used variables in the model are: GDP per capita difference, population, distance and relative endowments of factors of production (capital, land and labour). In most of the analyzed regressions the coefficients on determinants such as GDP per capita difference and population are positive and their impact upon the bilateral trade (as dependent variable) is statistically significant. Intensity of Macedonian trade decreases in regard of the distance from a trade partner and increases in partner’s size – the country tends to trade more with lager countries. In our analysis we included three dummy variables such as: membership in the EU and in CEFTA-2006 and common language. The impact of the possible membership in the EU is clearly positive and statistically significant. Being a candidate country for full EU membership, Macedonia trades more with EU trade partners rather than with the neibouring countries, members of CEFTA-2006. Keywords: bilateral trade, gravity model, trade partners, Republic of North Macedonia, European Union, CEFTA-2006

Highlights

Gravity models have long been used as a workhorse for analyzing bilateral trade flows
Being a candidate country for full EU membership, Macedonia trades more with EU trade partners rather than with the neibouring countries, members of CEFTA-2006
In this paper we apply gravity model to analyze the determinants of bilateral trade flows of Macedonia

Summary

INTRODUCTION

Gravity models have long been used as a workhorse for analyzing bilateral trade flows. In this paper we apply gravity model to analyze the determinants of bilateral trade flows of Macedonia. The purpose of the paper is through analyzing the determinants of Macedonia’s trade and by comparing them with the actual international trade position of the country to determine the flows and possible areas where different actors and instiututions could lead conclusions for future possible policy recommendations. Macedonia is a small landlocked import dependent country with unfavorable economic structure. The unfavorable economic structure of the country was inherited from the two former Yugoslav states within which the Macedonia economy was integrated. This inherited economic structure of goods did not record many improvements even 30 years after its independence (see Table 1)

18.5 Consumption goods

LITERATURE REVIEW

EXPLANATION OF THE ECONOMETRIC MODEL AND DATA

EXPLANATION OF THE RESULTS

Findings

CONCLUSIONS