A Gravity Model of Trade Turnover Between Ukraine and the Eu

Abstract

Determining the conditions for further liberalization and the reality of long-term and effective trade and economic cooperation of Ukraine with the EU countries requires assessing the strength and probability of the influence of institutional factors. The possibility of taking into account the significance of institutional factors in the development of foreign trade relations creates a gravity modelling. Determination of gravitational principles of foreign trade actualizes the problem of developing the gravity model, which takes into account impact of institutional factors, contains the necessary and sufficient number of factors, and may be tested for adequacy based on statistical data. The purpose of the paper is to construct the gravity model taking into account the institutional conditions of trade and its empirical verification on the example of trade turnover between Ukraine and the EU. Methodology. Methods of statistical analysis and econometric modelling were used for constructing the gravity model, estimating its statistical significance and predictive ability. In the article, the necessity of taking into account the influence of institutional factors on the formation of the competitive status of the country in the sphere of international trade is substantiated. It is proved that, in conditions of increasing the contradictory nature of trade relations, the role of institutional gravity factors in foreign trade between states increases. The result of the article is the gravity model with such explanatory factors, as the gross domestic product of trade partners in purchasing power parity and the complex characteristic of “trade distance” between countries as an indicator of the influence of institutional factors on foreign trade relations. As a conclusion, it may be noted that the model is statistically significant, adequately describes the input data. The proposed model takes into account the presence of institutional factors of foreign trade, whose influence on the interstate trade and economic cooperation conditions is constantly increasing. Value/originality. The proposed results can be used for modelling and forecasting of foreign trade between trading partners, taking into account the impact of specific institutional factors on their foreign trade relations.

Economic Integration of Ukraine: Context of the Russian-Ukrainian War

“…The dynamics and structure of bilateral trade between Ukraine and the EU and the outcomes of mutual trade integration have been studied in a number of works. For example, Melnyk et al (2018) used gravitation modelling to analyse trade between Ukraine and the EU taking into account the prices for oil. Yatsenko et al (2020) measured the impact of GDP on the EU-Ukraine trade.…”