Gravity model of trade and Russian exports

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School of Business | Master's thesis
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PURPOSE OF THE STUDY: The purpose of this thesis is to utilize the Gravity Model of Trade in order to get an understanding of the reasons behind Russian export flows. The aim of this study is to find out if the most common gravity variables have a similar effect on Russian exports as they do for most of the advanced economies. As Russian exports consist mainly of raw materials, one could assume that they behave differently from the exports of western countries. During the past two decades the Russian economy has gone through huge changes. The collapse of Soviet Union forced the country from a planned economy to a more western market economy in which the government still plays a major role. As a result of this, the trade flows from Russia have multiplied as the country has integrated to the Global markets. DATA AND METHODOLOGY: The data includes Russia's exports to its 31 most important trading partners from 1996 to 2010. The gravity variables such as country's GDP and population were retrieved from OECD statistics database, national databases and Central Bank of Russia database. Distances between trading countries were self-calculated. The study was performed using the panel data method and by running separate regressions for Russian total exports, Russian oil and gas exports and Russian non-oil and gas exports. RESULTS: While Russian population has on average been declining during the period studied, the exports have grown substantially, which causes the coefficient for population to be negative. At the same time the ruble has on average been appreciating and therefore the real exchange rate variable has a positive coefficient. This result differs from the majority of western countries, where real appreciation of a currency usually leads to declining exports. Distance between Russia and importing country has a negative coefficient as expected, but it's not statistically significant.
Russia, gravity model, exports, trade
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