Modification of the Gravity Model of Anderson and van Wincoop for the Analysis of Russian-Belarussian Trade

Gravity models are the main mathematical tool for the study of international trade associations, for example, they can be used for the analysis of trade between Russia and Belarus. Russian-Belarussian trade is regulated by the rules of the Eurasian Economic Union (EEU), which means that the models should take into account the influence of all the member countries. Russia’s large area and length of the borders pose a significant challenge for designing spatial models of trade; a failure to give due consideration to this fact may result in incorrect estimates of the gravitational model. Alternatively, we can consider individual Russian regions and model their trade relationships with other countries. Such approach, however, is extremely difficult to implement since there are no statistical data on trade between the subjects of the Russian Federation. In order to overcome this difficulty, this paper proposes and theoretically justifies a modification of the well-known gravity model of Anderson and van Wincoop for situations where data are unavailable. The resulting modification was applied to evaluate the gravitational model of trade between Belarus and Russian regions within the EEU. In addition, the original methodology of Anderson and van Wincoop was adjusted to evaluate the effects of comparative statics from changes in the size of trade barriers. Thus, we were able to compare the trade barriers between Russia and Belarus with the trade barriers between Russia and other EEU member states.