PROCESSED FOOD TRADE OF EUROPEAN UNION COUNTRIES – THE GRAVITY APPROAC

Abstract

A significant feature of world trade development is the diminishing role of developed countries in the international agri-food market. The share of the European Union in processed food export has been reducing steadily from 2000, giving place to developing countries at the same time. Considering studies devoted to the factors influencing bilateral trade, the question to what extent the trade of processed food depends on consumer preferences represented by absolute differences of GDP per capita (Linder hypothesis), geography, and trade liberalization remains open. It is interesting in the context of the new demand-oriented trade theory and the globalization process that causes a shrinking distance. The main purpose of the paper is to indicate the impact of consumer preferences and geography on the export value of processed food of EU countries in 2000-2019. To achieve this goal, the gravity model was constructed and estimated via Hausman-Taylor panel regression. The dependent variable was the bilateral export value of processed food of EU countries. The independent variables included GDP, geographical distance between partners, differences of GDP per capita of exporters and importers as a proxy of the Linder hypothesis, membership in a preferential trade agreement, and being landlocked. Research confirmed the validity of the Linder hypothesis and the significance of geography and regional trade integration in shaping the export value of processed food of EU countries.