Analysis of regionalism and its impact on trade flows through the gravity model

International trade affairs have been continuing on a GATT/WTO basis, relying on multilateral trade liberalization negotiations. From 1960s on, European-centered regionalism has begun to emerge and spreaded to all developing regions in the world. In the 1990s, the collapse of the USSR, the US flip flop in favor of regionalism and the developments in favor of regionalism in the European continent all contributed positively to the regionalism process. This process which is also named as new regionalism reached to a considerable extent all over the world. In parallel with these developments, how regionalism will affect trade flows has become frequently debated issues in international economics literature both at theoretical and empirical level.A review of literature suggests that the regionalism could affect the multilateral trade liberalization in either a positive or negative way. In addition, through the trade opportunities and trade creation and diversion, regionalism directs the trade flows of countries. The aim of this study is to examine determinants of trade flows and analyze the impact of regionalism on trade flows. To this end, firstly the concept, process as well as the current level of regionalism has been examined. Moreover, the determinants of trade flows and the impact of regionalism on those flows were analyzed using the gravity model. Groups comprising 92 countries from 8 regional trade agreements were investigated using cross-section and panel data analysis. The results obtained indicate differences among these agreements. Via regionalism, the members of MERCOSUR, ANDEAN, COMESA and CACM were found to have increased the trade with each other. On the other hand, EU, NAFTA and AFTA were found to affect export and import positively, while MERCOSUR affected export positively and import negatively. SAPTA, ANDEAN, COMESA and CACM were found to affect export and import negatively.