Trade patterns of Azerbaijan: Gravity model approach

This study investigates the trade patterns of Azerbaijan by using the Gravity model approach. Bilateral trade, import, export, and non-oil export has been analyzed as dependent variables. We used WITS and CEPII datasets to run panel regression to explore the impact of economic size (GDP per capita, population, land area) and geographical position (distance) on bilateral trade. The results indicate that GDP per capita of origin and destination countries is positively correlated with bilateral trade and import while distance factor is found to be insignificant. However, we explain the insignificance of distance by the large share of products which is insensitive to geography and distance factors (share of oil products in total export is more than 90% which rely on long-term contracts). However, we found that distance has a negative impact on non-oil export. Thus a 1% rise of GDP per capita for destination and origin country leads to an increase in Non-Oil export by 0.67% and 0.51%, respectively.