Australia's global trade potential: evidence from the gravity model analysis

Abstract

This paper attempts to investigate trade potential for Australia using the augmented gravity models and cross section data of 50 countries. Ordinary Least Square (OLS) has been used as an estimation technique for 2001 and 2005 data. The estimated coefficients from the gravity models are then used to predict Australia's trade potential. Our results reveal that Australia's bilateral trade is affected positively by economic size, per capita GDP, openness and common language, and negatively by the distance between the trading partners. The estimated results show that Australia has tremendous trade potential with Singapore, Argentina, the Russian Federation, Portugal, Greece, Chile, the Philippines, Norway, Brazil and Bangladesh.