Gravity model analysis of globalization process in transition economies

Title: Gravity model analysis of globalization process in transition economies
Issue: Vol. 12, No 2, 2019
Published date: 05-2019 (print) / 05-2019 (online)
Journal: Journal of International Studies
ISSN: 2071-8330, eISSN: 2306-3483
Authors: Andriy Stavytskyy
Department of economic cybernetics, Taras Shevchenko National University of Kyiv, Ukraine

Ganna Kharlamova
Department of economic cybernetics, Taras Shevchenko National University of Kyiv, Ukraine

Vincentas Giedraitis
Vilnius University, Lithuania

Ezgi Ceylan Sengul
Vilnius University, Lithuania
Keywords: globalization, gravity model, trade, exports, transition, Baltic states, Ukraine
DOI: 10.14254/2071-8330.2019/12-2/21
Language: English
Pages: 322-341 (20)
JEL classification: P33, F10, C01
The research is done in the framework of scientific faculty research 16КF040-04 "Steady-state security assessment: a new framework for analysis" (2016-2021) and the project "Innovative and entrepreneurial models of modern universities: World trends, main risks and new opportunities for Ukraine"(2019), Taras Shevchenko National University of Kyiv (Ukraine)

The globalization process develops itself differently for each transition country. Likewise, implementation of reforms and their impacts on trade relations show variety among countries. The article focuses on five countries (Finland, Estonia, Latvia, Lithuania, and Ukraine). It considers how the factors (the size of the economy, the ratio of the price index of the countries, common borders on the sea or on land, distance between the states and the existence of common currency) have affected the export trade volume with trading partners during 1996-2017. The main methodology of the article is formed around the gravity model, which suggests that trade relations between countries can be explained by their economic size and the distance between states’ financial centres. The findings show that such factors still play a significant role, but logistic problems became much weaker during the last years. It is necessary to note the influence of the Industry 4.0, which intensifies the service of the economy and introduces new adjustments to the allegedly established theoretical dependencies in trade and economic development of the state. The research has shown that countries that are close to each other have fewer opportunities for developing export potential. At the same time, the presence of a common currency allows states increase exports by about one-fifth. At present, changes in domestic prices in countries do not play a significant role in exports, same as the ratio of the economy size. Therefore, taking into account the development of transport infrastructure, it is possible to increase significantly the exports in Europe, especially with the involvement of Eastern Europe.


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