Abstract:
With the advent of globalization, different countries have liberalized their trade policies to enhance their economic integration and developmental processes. In this study, three different regions, EU, ASEAN and SAARC are selected in order to specifically examine how economy size, geographical distances, common language, cultural variations, common border and trade agreements enhance trade among willing trading partners over a period of 1985 – 2015. The gravity model is the most successful empirical model being used to investigate the effects of different factors on trade flows among trading partners. The empirical results show that while comparing EU, ASEAN and SAARC, it has been observed that each region’s economy size and distance are significantly affecting the total trade. However, in a more specific examination, it is observed that ASEAN’s source country’s GDP is dominant in explaining the total trade within region. Further, it is also evident that for EU destination country’s GDP plays an effective role in the development of trade in that region. The results show that in each region every factor has different effect on total trade, exports and imports. For EU and ASEAN regions, it is evident that ethnicity and regional trade agreement can be an effective ways to increase total trade over a period of time. Moreover, over a period of time the effectiveness of the above-mentioned factors remains significant in these regions. In order to further explicitly and specifically examine the effectiveness of the described factors, we split total trade into exports and imports for EU, ASEAN and SAARC regions. The results show that in all regions, economy sizes of sources and destinations and their geographical distances, existing inflation rate and exchange rate have significant affects that translate into enhancement of exports in the region in the presence of the social and trade related factors. Moreover, trade openness also has significant effect on exports. While making a comparison amongst the regions, each factor exhibits varied levels of effectiveness on total exports in EU, ASEAN and SAARC. The results for EU show that all the given factors are suitable for promotion of exports in the region. Further, it has been observed that ethnicity and regional trade agreement may increase exports to greater extent as compared to common border and common language. On the contrary in ASEAN only common border and regional trade agreement may increase their exports within the region. While in SAARC all social and trade related factors significantly affect the total trade in this region. Likewise, the effectiveness of common language, common border, ethnicity and regional trade agreement can be empirically examined for EU, ASEAN and SAARC countries. It has been observed that in EU common border, ethnicity and regional trade agreement can be effective ways to attract more imports. In case of ASEAN countries, depending upon the structure of economies, common border, common language, ethnicity and regional trade agreement are effective ways to promote the level of imports in this region. In contrast to EU and ASEAN, depending upon the structure of concerned economies, in SAARC countries, level of imports can be increased most effectively through common border, common language and ethnicity
