Applying the Gravity Models for the Analysis of Trade between Ukraine and the European Union

Abstract

This article presents the application of gravitation models in bilateral trade in agricultural products such as wheat, corn and barley between Ukraine and the European Union. The power of influence of factors related to the process of globalization on the volume of trade flows of agricultural products between countries is shown. These determinants were considered as an alternative to the physical distance between countries in the equation of gravity proposed by Jan Tinbergen. Trade relations between the EU and Ukraine are of interest in influencing the functioning of the entire sector of the economy. The weight of these ties is especially important if we take into account such sensitive markets as, e. g., market of agricultural products. In this case, trade and its results are affected by complex agricultural policies, including diversified support instruments or rules applicable in the EU and in Ukraine. Disparities in the scale of financial support for individual markets and their impact on the level of domestic prices have led to a diversification of the impact on trade turnover. This phenomenon also explains the lack of mutual attractiveness of economies in terms of trade flows. In the traditional gravitation model, the value of trade between any two countries is proportional (all other things being equal) to the GDP gain of these countries and inversely proportional to the distance separating them. In today’s global economy, physical distance between countries is no longer such a significant brake on international trade, and thus the distance in the gravitation model can be understood as the degree of similarity between economies trading with each other.

Keywords

• gravitation model
• international trade
• trade in agricultural products
• trade flows
• the european union