A Panel Data Analysis of Albania’s Trade: The Gravity Model Approach
Keywords:International Trade, Gravity Model, Distance, Economic Mass, Coefficient of Elasticity
International trade allows countries to expand markets for goods and services that otherwise may not have been available. These trade benefits have encouraged countries to strengthen trade ties and seek new trade opportunities, Adam Hayes (2022). This paper aims to investigate the role of distance and economic mass in gravity regressions. It also estimates a non-linear gravity model for 24 main European trade partners with Albania from 2008 to 2020. This paper uses a data set of 312 observations for each of the three variables (a total of 936), organized in panel data obtained from the World Bank during the mentioned period. Three research questions are designed to achieve the goal related to economic mass and distance’s role in international trade, estimated elasticity coefficients, and the methods to evaluate the gravity model. The main findings explain that the Gravity Model successfully explains Albania’s bilateral trade, and the estimated elasticity coefficients can explain the extent of the trade response to the change of the variable in percentage. This information may be helpful for policymakers to improve the trade balance and to orient the economy toward sustainable development.
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