What Determines Bilateral Trade Flows?
Marianne Baxter , Michael A. Kouparitsas
This paper undertakes an exhaustive search for robust determinants of in- ternational trade, where "robustness" is tested using three popular empirical methods. The paper is frankly atheoretical: our goal is solely to establish statistically robust relationships. Along the way, however, we relate our results to the empirical results obtained by prior researchers and to the received theory of international trade. We .nd that robust variables include a measure of the scale of factor endowments; .xed exchange rates; the level of development; and current account restrictions. Variables that are robust under certain methods and sample periods include exchange rate volatility, an index of sectoral sim- ilarity, and currency union. However, the estimated coe¢ cient on currency union is much smaller than estimates obtained by prior researchers.
