Extended gravity model of Polish trade. Empirical analysis with panel data methods

The goal of this paper is to investigate the determinants of the intensity of bilateral trade flows of Poland with its trade partners at the general (country level) with the use of trade gravity approach. The analysis is carried out for 234 trade partners of Poland in the period 1999-2013. In the basic version of the trade gravity model we take into account the standard factors suggested by the literature of the subject. In its extended version we control for additional factors including: relative endowments of factors of production, technological gap as measured by TFP and relative patenting performance, quality of institutions, impact of regional and bilateral trade agreements or exchange rate volatility. The impact of the Polish diaspora is also taken into account. In order to investigate the impact of the global crises on trade intensity we construct and introduce a variable depicting the severity of the crises for individual trade partners. In an attempt to obtain unbiased results we utilize semi-mixed effect method using PPML estimator as suggested in recent empirical articles. In most of the cases the coefficients for the traditional gravity determinants are economically sensible and their impact on the dependent variable is statistically significant and robust.