Gravity Approach for Analysing Bilateral Trade Flows of the Baltic Rim Countries

The gravity equation for analysing the trade flows between the Baltic Rim countries have been elaborated in order to test the hypothesis that the knowledge resulting from universal law of nature is also applicable for exploring bilateral trade flows of the countries. The results of the study support the statement that the size of economy, which is expressed by the size of population, has statistically significant and positive influence on the bilateral trade flows. Distance has a negative impact on trade flows expressing most significantly cultural proximity and historical relationship between the countries of the region. The Baltic rim regional integration effect in trade is inherently larger for small countries.