Determinants of Trade Flows in Eurasian Countries: Evidence from Panel Gravity Models

Foreign trade structure of Eurasian countries has been significantly affected from the increased globalization and changes in world politics. This paper analyzes bilateral trade of the selected Eurasian countries using gravity models for 1995-2020 period. For this purpose, we estimate augmented panel gravity model for a dataset of Eurasian countries. We examine the effects of a number of factors including countries’ GDP, population, distance and real exchange rate on the region’s export and import dynamics. Along with these variables, various explanatory variables such as GDP per capita, Linder effect, dummy variables that indicate common language, sharing of borders and free trade agreements are included in the models. To this end, we also analyze the impact of Eurasian Economic Union (EUEA) membership on the magnitude of bilateral trade flows. Gravity equations for export and import are estimated by fixed effects methodology. Our results suggest that income levels, factor endowments and real exchange rates are among the important determinants of trade performance of Eurasian economies.