A GRAVITY MODEL APPROACH TO ANALYZING THE TRADE PERFORMANCE OF CARICOM MEMBER STATES

Abstract

This study examines the trade flows in commodities for CARICOM countries through the utilization of the traditional gravity model for international trade. Per capita GDP differential, trade to GDP and language all impact trade positively. On the other hand, geographical distance, exchange rate and unexpectedly, historical trade relationships have negative effects on trade. The results suggest that management of the exchange rate is critical and that CARICOM countries may be served better by trading with countries with higher living standards.