Abstract
The article examines the vulnerability of foreign trade of the Republic of Moldova, based on the development and analysis of a gravity model, in order to determine and quantify the factors affecting foreign trade. The distance and economic size of the trading partners underlie the gravity model, and the model created by the author confirms these assumptions. Another factor analyzed on the basis of the elaborated model, using the GDP difference per capita between the Republic of Moldova and trading partners as an independent variable, confirms the relevance of Ricardo’s model. The analysis shows that free trade agreements have a positive effect on foreign trade, and the ,,Brussels effect” has a positive and significant impact on Republic of Moldova’s foreign trade. In the research we analyzed the gravity model for the Republic of Moldova with 20 trading partners by the econometric method of the regression panel data.
Highlights
It is known from the content of the fundamental works of Jan Tinbergen,Shaping the world economy: suggestions for an international economic policy” (1962) that the size of bilateral trade can be calculated according to the gravity model, the name of which comes from an analogy with Newton’s law of gravity: just as the gravitational pull between two bodies is proportional to the product of their masses and decreases with distance, trade between two countries increases in proportion to the economic size of the trading partners and inversely proportional to the distance between them. [16]
It is calculated that the product between the population of Republic of Moldova and the population of the partner; - variable dummy RM_ALS – which has a value of one for trading partners with which the Republic of Moldova has concluded a free trade agreements (FTA) since the year in which they were signed, and value 0 if there are no free trade agreements; - variable dummy Brussels_effect - which has a value of one for European Union members, since the year they became EU members, in order to assess the,Brussels effect”, and zero when they are not part of the EU
It is shown that distance and trade costs have a rather severe impact on the values of exports and imports of goods. This fact confirms that distance counts for the foreign trade of the Republic of Moldova and represents a factor that cannot be changed, it is a source of dependence and vulnerability that cannot be overcome
Summary
Summary The article examines the vulnerability of foreign trade of the Republic of Moldova, based on the development and analysis of a gravity model, in order to determine and quantify the factors affecting foreign trade. The distance and economic size of the trading partners underlie the gravity model, and the model created by the author confirms these assumptions. Another factor analyzed on the basis of the elaborated model, using the GDP difference per capita between the Republic of Moldova and trading partners as an independent variable, confirms the relevance of Ricardo’s model. In the research we analyzed the gravity model for the Republic of Moldova with 20 trading partners by the econometric method of the regression panel data.
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