Working Paper

What determines bilateral trade flows?

Abstract: This paper undertakes an exhaustive search for robust determinants of international trade, where \"robustness\" is tested using three popular empirical methods. The paper is frankly atheoretical: our goal is solely to establish statistically robust relationships. Along the way, however, we relate our results to the empirical results obtained by prior researchers and to the received theory of international trade. We find that robust variables include a measure of the scale of factor endowments; fixed exchange rates; the level of development; and current account restrictions. Variables that are robust under certain methods and sample periods include exchange rate volatility, an index of sectoral similarity, and currency union. However, the estimated coefficient on currency union is much smaller than estimates obtained by prior researchers.

Keywords: Business cycles; Trade;

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Working Paper Series

Publication Date: 2005

Number: WP-05-11