A Gravity Model Analysis For Trade Between Mongolia And Its Top Trading Partners

During the gravity model has become one of the most successful applications in empirical analysis of trade,many attempts are still made to improve its regression results.This empirical research's purpose is to analyze bilateral trade between Mongolia and its top trading partners based on the panel data covering the period 1995-2015 and find out the relevant factors to external trade of Mongolia by applying the gravity model approach.In this empirical research,balanced panel data of the countries was collected fro m the data banks of World Bank and International Trade Centre.The predicted findings reveal that economic size and market size of Mongolia and its top trading partners have a strong effects on bilateral trade flow.The devaluation of exchange rate impacts to bilateral trade between Mongolia and its top trading partners positively and distance of two countries as transport cost has significant effect on bilateral trade flow negatively according to the gravity model.The strategic partnership status of Mongolia does not influence to bilateral trade volume of Mongolia.The estimated results of the gravity model were utilized for measuring potential trade of Mongolia with its top trading partners.Calculated result shows Mongolia has an opportunity to increase bilateral trade with United States by 51.2%,although this country is located far away from Mongolia geographically.Similarly,Mongolia has a chance to grow its trade with People's Republic of China,the south neighboring country,by 7.7% even though China plays an important role on Mongolia's foreign trade activities and economy.As stated by bilateral potential trade analysis,Mongolia's trade with Japan,Russian Federation and Republic of Korea which are the other trading partners,are overused.Finally,it is possible to raise the trade turnover between Mongolia and its top trading partners by approximately 4.4% as results based on the gravity model analysis.