Determinants of bilateral trade flows

This thesis aims to shed light on the determinants of bilateral trade flows across countries. Following the ideas of Linder, a demand-side approach is being taken next to the prevailing trade theories analysing trade from a supply-side perspective. Recent theoretical works predict patterns of trade in which southern countries export mostly to northern countries and northern countries to a broader set of countries. Patterns of trade will be empirically explored incorporating income differences across countries and their income distribution as determinants. Trade will be split into an intensive and an extensive margin where the focus will be on the latter. Single bilateral trade flows will be aggregated to sectors to tackle sector-specific characteristics. Not only the percentage of markets, but also the percentage of products traded bilaterally will be investigated using stylised facts and Bernoulli quasilikelihood estimation. Variables for income differences and distributions will be GDP per capita and Gini coefficients respectively. The empirical analysis reveals that GDP p.c. has a significant impact on both the percentage of markets and the percentage of traded products. The effect of inequality is ambiguous with no clear-cut results. The sectoral analysis proofs to be crucial to analyse trade. JEL: D31, D63, F10, F14, F17, O15