The gravity model and United States' trade

Abstract

This study examines the determinants of bilateral trade between United States and NAFTA, European Union, and ASEAN countries in the period 1995-2008, using a panel data. In this paper we revisited the recent contribution as in Egger (2000, 2002, Baltagi et al. (2003)and Serlenga and Shin (2007), Faustino and Leitão (2008,and Kabir and Salim (2010). The findings indicate that United States' trade flows follow the Linder hypothesis, while the bilateral trade is associated with Heckscher-Ohlin-Samuelson theorem. Results show that geographical distance is negative and significant; i.e., trade increases if the transportation costs decrease. We also introduce the economic dimension, productivity and common border; these proxies confirm the positiv effects in bilateral trade. Our results also confirm the hypothesis that foreign direct investment is positively correlated with trade.