Potential trade in south-east Europe: a gravity model approach
Potential trade in south-east Europe: a gravity model approach

Summary/Abstract: Gravity models have been used extensively in recent years to try to quantify potential trade levels, particularly with transition countries. This paper presents a classical approach to the problem and focuses the discussion on the variables of the model, with a specific emphasis on trade flows with and within south-east Europe. The overall performance of the model presented in this paper seems good when viewed superficially, notably from the viewpoint of classical goodness-of-fit measurement. On closer inspection, many trade flows are substantially larger or substantially smaller than the model would forecast, especially flows with and within southeast Europe. These large deviations nevertheless constitute interesting information regarding trade levels for the region, and a certain number of comments of interest can be inferred from the model’s estimations. Perhaps the most important conclusion is that the classical question: ‘Have they reached potential already, or is there still some way to go?’ receives a very differentiated answer depending on which trade flow one considers.

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