Trade between New Zealand and Latin American countries: a modified gravity model

Abstract

The thesis studies the evolution of bilateral trade between New Zealand and seventeen Latin American countries over the period 1958 to 1997. The period includes the early stage of erratic emergent trade as well as the foreign trade-oriented phase of the nineties.

The work has two objectives. The first is to understand the qualitative nature of the evolution of bilateral trade. In this part we focus on the emergence of specific product groups and country patterns. We find that much of the evolution has been influenced by factors like the economic policy orientation of participating countries, local politics and diplomatic and marketing efforts - factors that usually fall outside the scope of standard trade theoretic analysis.

The second objective is to model quantitative evolution using a modified gravity model. Unlike in most of the gravity model literature that uses cross-section analysis, we use a country-specific time-series model. This allows us to incorporate the effects of political and military developments as well as structural changes specific to each country. We find that while traditional explanatory variables like income and population of participating countries are important, to explain the time series data more adequately we need to incorporate additional attributes like local political and military events into the model.

The estimated import equations are then analysed and interpreted to focus on the aspects of bilateral relation that may be of use for the future evolution of New Zealand trade with Latin American countries.