New Findings on Actual and Potential Trade between Romania and the Russian Federation: A Gravity Approach

The paper attempts to verify the hypothesis that Romanian exports to the Russian Federation are below their potential. We first looked at statistical data regarding bilateral trade, custom duties and foreign direct investment; the resulting conclusions support our hypothesis. Further, we use a gravity equation, in order to forecast Romanian exports to a number of 43 countries, accounting for a sizeable share of total exports, covering a world-wide area using data series over a period of time between 1993 and 2008. Based on the gravity equation, we calculated export potential of Romania to the Russian Federation, being interested in the long run trade dynamics potential. We made the comparison between potential and real trade for the year 2008, being in fact interested in what export would have been in 2008 if during all the period studied (1993-2007) trade would have followed the gravity patterns. We conclude that if the Romanian exports to the Russian Federation would have perfectly fitted the general “gravity pattern”, the level of exports to the country would stand at 2,317 current billion dollars, which is 2.58 times higher than the registered level. From an economic point of view, these results can be interpreted, in the context of our broader analysis, as a good indicator that the opportunities in the Russian Federation market are still undervaluated by Romanian exporters and the rest of stakeholders in the exportation process.

Keywords: Romanian exports, potential exports, the Russian Federation, gravity model, trade development
JEL Classification: F10, F17, F11