DETERMINATS OF SIZE OF TRADE A: A CROSS COUNTRY ANALYSIS

Abstract

International trade remains a veritable instrument in developmental process. However, what determines trade between countries remains an issue of empirical investigation. Consequently, the study examines the determinants of trade in cross countries context and trade policy effects on the diversification of the economy. The study provides a review of the key determinants of trade and identifies proxies that enable us to quantify the relative importance of the different channels. We estimate this across a panel of twenty two countries both (developed and developing) which Nigeria has traded with most in US dollar terms in the past 20 years. The finding was quite satisfactory since the estimates passed the economic, statistical and econometric expectation of evaluation. However, while GDP is positive and statistically significant in determining trade, distance has the anticipated negative sign and is slightly over one, indicating that trade between a pair of countries falls by a little over 1 per cent for every 1 percent increase in the distance between them. Also, the coefficient on the dummy variable for a common border indicate two countries that share a common border engage more in trade than two otherwise similar countries. Again, the effect of landlockedness which may add to transportation costs also shows holding constant for other factors, the lack of ocean ports reduces trade by about 30 per cent. Sharing a common language increases trade significantly. There is evidence that exchange rate volatility has negative impact on trade. Population displays positive, though not statistically significant in determining bilateral trade.