Augmented Gravity Model of International Trade: An Empirical Application to Poland's Trade Flows
Augmented Gravity Model of International Trade: An Empirical Application to Poland's Trade Flows

Author(s): Jana Šimáková
Subject(s): National Economy, Economic policy, International relations/trade
Published by: Masarykova univerzita nakladatelství
Keywords: exchange rate volatility; international trade; gravity model; sector analysis;
Summary/Abstract: This paper applies the gravity model to Poland's international trade with aim to assess the impact of exchange rate uncertainty of Polish zloty on the trade flows with its main trading partners. Basic gravity model shows trade volume between a pair of countries as an increasing function of their sizes (GDP) and a decreasing function of the distance between them. Additional factors included in extended model are population, common border and exchange rate volatility. The measure of exchange rate volatility is estimated by GARCH model. The analysis is provided by using quarterly data over the period 1999:1 - 2014:3. Analysis uses panel data regression for 10 sectors of Poland's international trade based on SITC classification and six major trading partners (Czech Republic, Germany, France, Great Britain, Italy and Slovakia).

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