Gravity Model: An Application to Trade Between Regional Blocs‪.‬

Introduction The objective of this paper is to evaluate the determinants of bilateral trade flows among 47 countries and particularly, the effects of preferential agreements between several economic blocs and areas: European Union (EU), North-American Free Trade Area (NAFTA), Caribbean Community (CARICOM), Centro-American Common Market (CACM) and other Mediterranean countries (MEDIT). The period under study is from 1980-99 (last year for which data are available). With this aim, a gravity equation is estimated that allows the comparison of the weight of the influence of preferential agreements and also, infers the relevance of other determinants of bilateral trade flows such us geographic proximity, income levels, population, and cultural similarities. The analysis is undertaken for each year of the sample in order to capture the temporal evolution of the. impacts on trade of the different variables considered. Using the estimation results as a base, trade potentials resulting from new free trade agreements are calculated.