Determinants of the European Union’s Trade - evidence from a panel estimation of the gravity model

The article is focused on the issue of trade exchange between European Union member states. The trade exchange volume noted an increase after the new members had joined the European Union. That may be observed while analysing statistical data on the trade exchange volume in specific states as well as in the whole of the European Union. A simple index analysis of the trade volume enables researchers to observe changes over time; however, it neglects the causes of these changes. With a view to identifying theses causes, an econometric tool – the panel gravity model – was used for the purposes of the present paper. The research objective of the paper is to evaluate the impact of selected factors on the development of bilateral trade in the European Union in the years 1999–2010. The group of potential factors describing the size of trade exchange includes the following: the Gross Domestic Product per capita, foreign direct investment per capita and the geographical distance between trading partners. The research outcome enabled us to draw a conclusion on a positive dependence between a member state’s GDP and its export and import volume. In the case of foreign direct investments, their positive impact on the improvement of member states’ exporting potential was identified. Moreover, a negative dependence between the geographical distance and the size of their trade exchange was proved. Also, the paper discussed the impact of EU membership on increasing trade exchange volume. The research found an essential increase in exports from the new EU-12 countries to the EU-15 countries and inversely