The effects of regionalisation on trade flows

Abstract

Recent research on international trade has highlighted the role of geography in influencing trade patterns. This article seeks to contextualise spatially the traditional gravity model used widely to examine patterns of international trade. It shows that since global trade is increasingly organised around regions, variations in regionalisation or geographical bias affect the levels of bilateral trade. When such biases are not taken into account, then estimation of the gravity trade model fails to discriminate between the relative spatial structures of trading regimes. The above argument is examined in the context of Asia-Pacific and Europe which are observed to have relatively different forms of regionalisation tendencies.