Gravity model used for the analysis of economic developments

Abstract

In this article we study the influence of ethnic fragmentation on foreign trade in the countries of Southeastern Europe in the conditions of recent conflicts. The analysis of trade is done using the gravity model. The explanatory variables of economic foreign relations, as inter-state social structure and inter-state political relations, play an important role in this region, namely in the context of the economic transition, and of EU enlargement to the East.The gravity approach followed in the article allows to consider the multilateral resistance, by the introduction of the fixed effects, and the model is estimated by pseudo-Poisson of Maximum Likelihood, that allows to include the null trade flows. The results show a positive influence of ethnic fractionalization on the import flows, as well as a positive influence of the 1990 conflicts on the volume of trade.

Keywords

• gravity model
• multilateral resistance
• pseudo-Poisson of maximum likelihood
• Southeastern Europe
• foreign trade
• ethnic fractionalization
• conflicts