Determinants of bilateral trade: evidence from ASEAN+3

Abstract

In this research, we investigate the determinants of international trade, employing a dataset of bilateral trade and economics characteristics in the ASEAN+3 countries. We include a large number of dependent variables that potentially drive international trade. We also use various standard gravity model variables to maintain consistency with the current literature. The results provide some important insights into the determinants of bilateral trade and offer policy implications regarding the promotion of international trade for governments worldwide. In particular, we find that output asymmetry between countries positively explains bilateral trade. Moreover, the findings suggest that making use of comparative advantage by differentiating the export product structure is important in promoting international trade. We do not find a consistent impact from bilateral exchange rate volatility on bilateral trade. This result points to the importance of providing opportunities for the hedging of currency uncertainty to avoid its adverse effects on trade. The results for other standard gravity model variables are consistent with the results of previous theoretical and empirical research.