Revista Internacional de Economía y Ciencias de la Gestión

World Trade: The Importance of Neighbors

Abstract

Elias Sanidas

The position of countries in the world, in terms of continents, neighborhood, and so on may matter much more than we usually think when we want to determine business and economic performance, and hence trade and economic integration. In this study we want to test the hypothesis that the nations at zero distance (neighbors) to the exporting country overwhelmingly determine trade between all of them. We then test this hypothesis with the relevant data of all nations in the world and with the data of the major regions of Europe, Asia, Africa, and Americas. The econometric results based on panel data techniques (such as fixed and random effects as well as GMM) and the gravity model very clearly and robustly confirm our hypothesis that we can say with almost certainty that “tell me how many and who your neighbors and continents are and we will tell you how much you can export”. Furthermore regional integration is directly and indirectly included in the empirics. Thus, we can see how countries like France and Germany, or like Portugal and Greece perform in terms of exports in Europe. Good examples of countries which have many neighbors and create their own gravity center are Germany in Europe and China in Asia.