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Keywords:

  • Factor endowments;
  • geography;
  • gravity;
  • protection;
  • trade agreements;
  • trade policy
  • F1;
  • F13;
  • F14

Abstract

Many factors shape the global network of bilateral trade including fundamental forces of supply and demand factors and government policies. This study uses the generalised gravity framework to distinguish among the different drivers that either deter or aid partner trade in land-intensive agriculture and labour-intensive clothing. The dataset used in the analysis includes bilateral trade among 70 countries in 1995, 2000 and 2005. Collectively, the 70 countries account for 85% of the world’s trade in agriculture and 96% of its GDP. Empirical results lend support to the Heckscher–Ohlin explanation of trade, namely that relative factor endowments motivate cross-border trade. Results also show that tariffs are not always binding and bilateral free-trade agreements more often divert rather than create trade.