Determinants of International Trade Essay

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UNDERSTANDING THE DETERMINANTS OF INTERNATIONAL TRADE IN AFRICAN COUNTRIES: AN EMPIRICAL ANALYSIS FOR GHANA AND SOUTH AFRICA LAURA MÁRQUEZ-RAMOS Universitat Jaume I Instituto de Economía Internacional ABSTRACT There are clear economic differences between developed and developing countries that lead to a different behaviour among them in the determinants of bilateral trade flows. Although a number of authors have focused on the determinants of the trade patterns, further research is needed for a better understanding of what goods and with which countries developed and developing economies trade. This paper focuses on the determinants of international trade in African countries. From an empirical perspective, two African…show more content…
INTRODUCTION World trade has experienced an important increase in the last decades. Feenstra (1998) suggest several factors that explain this growth: Falling transport costs, trade liberalisation, economic convergence of countries and the increase of intermediate goods trade. In the same line, Baier and Bergstrand (2001) analyse what factors account for the growth of trade. Their results show that income growth, tariff rate reductions and lower transport costs have contributed to the growth of world trade. According to these authors, income growth explains 67% of the growth of trade, tariff reductions 25% and transport cost reductions 8%. These authors only use 16 OECD countries in the empirical analysis, and all of them are high-income countries. However, developed and developing countries face different economic characteristics and those play a different role in the growth of international trade. The main aim of this paper is to investigate the differences existing between two African economies, a developed (South Africa) and a developing country (Ghana), concerning the pattern and the direction of international trade flows to deal with three main questions: what goods, with which countries and how much these countries trade (Deardorff, 1984). The gravity model of trade is the empirical methodology most commonly used to analyse international trade flows determinants. When investigating why gravity works so well, Harrigan
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