WHAT DRIVES INTERNATIONAL TRADE? ROBUST ANALYSIS FOR THE EUROPEAN UNION

Economic literature is full of theories explaining international trade flows and empirical studies striving to verify them. Most of these attempts focus on the verification of single theory at a time without regard to the problem of model uncertainty. As a consequence, empirical research has brought a bulk of inconsistent results. The aim of the present paper is to validate which theories are correct on a purely empirical basis. To accomplish this, Bayesian model averaging was employed to 71 potential determinants of international trade for a sample of EU countries over the 1995-2015 period. The results show that the gravity model takes the lead in the explanation of trade flows. Membership in the EU has also a profound impact on trade, as each year of membership in the EU is associated with a growth rate of bilateral trade between 0.5 and 1.5. Finally, the analysis provides support to the predictions under Heckscher-Ohlin model of trade.