Andriy Stavytskyy

Department of economic cybernetics, 

Taras Shevchenko National University of Kyiv,

Ukraine

a.stavytskyy@gmail.com

Gravity model analysis of globalization process in transition economies

Ganna Kharlamova

Department of economic cybernetics, 

Taras Shevchenko National University of Kyiv,

Ukraine

akharlamova@ukr.net

Vincentas Giedraitis

Vilnius University,

Lithuania

vincas.giedraitis@ef.vu.lt

Ezgi Ceylan Sengul

Vilnius University,

Lithuania

ezgics@gmail.com

Abstract. The globalization process develops itself differently for each transition country. Likewise, implementation of reforms and their impacts on trade relations show variety among countries. The article focuses on five countries (Finland, Estonia, Latvia, Lithuania, and Ukraine). It considers how the factors (the size of the economy, the ratio of the price index of the countries, common borders on the sea or on land, distance between the states and the existence of common currency) have affected the export trade volume with trading partners during 1996-2017. The main methodology of the article is formed around the gravity model, which suggests that trade relations between countries can be explained by their economic size and the distance between states’ financial centres. The findings show that such factors still play a significant role, but logistic problems became much weaker during the last years. It is necessary to note the influence of the Industry 4.0, which intensifies the service of the economy and introduces new adjustments to the allegedly established theoretical dependencies in trade and economic development of the state. The research has shown that countries that are close to each other have fewer opportunities for developing export potential. At the same time, the presence of a common currency allows states increase exports by about one-fifth. At present, changes in domestic prices in countries do not play a significant role in exports, same as the ratio of the economy size. Therefore, taking into account the development of transport infrastructure, it is possible to increase significantly the exports in Europe, especially with the involvement of Eastern Europe.

Received: December, 2018

1st Revision: February, 2019

Accepted: April, 2019

DOI: 10.14254/2071-8330.2019/12-2/21

JEL Classification: P33, F1, C01

Keywords: globalization, gravity model, trade, exports, transition, Baltic states, Ukraine