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DETERMINANTS OF THE EXTENSIVE TRADE MARGIN IN LITHUANIA, LATVIA AND ESTONIA
Abstract
The paper examines the spread of the extensive trade margin of the three Baltic countries: Lithuania, Latvia and Estonia after the collapse of the Soviet Union in the 1990s. We use the gravity modelling technique including 3 countries of origin, more than 150 countries of destination and a large number of products to empirically estimate which factors were the most important for the spread of the number of export markets in these countries. For our econometric analyzes we take the main gravity model variables, such as the GDP, the distance between the countries, the number of current export markets of a country of origin, previous exporting (both serve as proxies for the experience of the country of origin), the growth of import in the destination country, common spoken languages, the stock of migrants in the destination country, free trade agreements and belonging to the same economic and political unions. The main research question is to examine, how the importance of these factors evolved during the first decades of the independence of Lithuania, Latvia and Estonia and if the influence of any of these factors was different for each of the three countries. Results show that the three Baltic countries demonstrated very similar determinants of the increase in the number of their export partners.
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