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Theoretical and Applied Economics
No. 2 / 2021 (627), Summer

Determinants of trade flows to Agadir Agreement countries: gravity model three-way approach

Sadok ACHOUR
University of Mohamed El Bachir Elibrahimi Bordj Bou Arreridj, Algeria
Dr. Fatima HADJI
University of Mohamed El Bachir Elibrahimi Bordj Bou Arreridj, Algeria

Abstract. This paper investigates the determinants of trade flows to the Agadir Agreement countries comprising 57 trading partners during the period of 2000-2019, using the gravity model. The results found that there is no effect of distance, cultural convergence, and colonial history on the trade flows of Arab countries. which is contradict to the expected results when using the gravitational model. This mixed findings led us to test the Poisson pseudo-maximum likelihood with High- Dimensional Fixed-Effects (PPMLHDFE), Which in turn fulfills the requirements for multi-lateral resistance. In addition, the findings show the importance of income for bilateral trade flows, while the increase in the number of Agadir Agreement countries has a negative impact. Trade flows in Agadir Agreement countries are affected negatively by long distance, and positively by border, linguistic similarity and colonial past. In addition, the findings show the importance of free trade agreements (FTAs) in increasing bilateral flows between parties involved, as the Agadir Agreement contributed by 29.35%, while trade flows to the Agadir Agreement countries with their trade partners, with whom they have a trade agreement, increased by 47.25%. As for the diversification index, it shows good explanatory power on trade flows; therefore, the most salient suggestion is to focus on export diversification.

Keywords: gravity model, trade flows, Agadir Agreement countries, free trade agreement, diversification index.

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