The Analysis of Export Drivers and Impediments Using Extended Gravity Model (The Case of Georgia)

Abstract

The goal of the present paper is to examine the drivers and impediments of Georgia’s exports to 33 Free Trade and Preferential partner countries during the 2000-2015 period and make trade policy recommendations. The analysis relies on the extended gravity model of trade in log-log form. The present analysis of the export determinants of Georgia, which is a small economy with high degree of trade openness, enriches the available international practice of application and testing the gravity model. The research results can be applied in comparative research studies.

The results show that Georgia’s exports to Free Trade and Preferential partner countries is strongly influenced by partners’ size (GDP and population) and geographic distance. Cultural and institutional distances as well as colonial ties are less significant determinants. There are variables other than the ones included in the model and they have stronger effects on Georgia’s exports so they need to be explored further. The study provides the grounds to draw important conclusions on the directions of Georgia’s economic integration and raises issues for further research.