Gravity Model Analysis of Trade Between Emerging Economies

Abstract

In the midst of fierce global competition, emerging economies which are known for their steady increase in their competitive power, became the center of interest with their peculiar structure that makes them different from both developed and developing countries. emerging market economies are countries which are committed to reform in order to alleviate problems that are existing in a country like unfair distribution of income, weak industrial and social infrastructure and overpopulation, which formulate and apply a long term plan and when these actions result in an increase in per capita GDP. The objective of this study is to determine factors that affect the trade volume of emerging economies in the international trade and to test whether gravity model could be used in explaining the trade flow of these economies using panel data analysis. Accordingly, emerging market economies' export data was included in the analysis as a dependent variable. while distance between the capital cities of these countries, GDP and population were included as independent variables. Attempt has been made to determine the relationship between emerging market exports done to their country group and GDP, distance and population variables with the help of annual data series spanning from the period 1990-2013 and a model formulated for 15 emerging economies. According to the findings of the study, among emerging economies for China, Czech Republic, Russia and Vietnam, the gravity model deemed applicable.