Gravity Model of Trade of Armenia

This paper presents a gravity trade model of Armenia on the basis of panel data for the period 1995-2016. Main purpose of the paper is to test the significance of free trade zone for Armenia established with the most post-soviet countries. This issue has become especially important since 2014 when Armenia joined Eurasian Economic Union operating among Russia, Kazakhstan and Belarus. Fixed effect model with importer, exporter and time effects was applied for non-zero trade while the total trade was examined using Poisson regression estimated by pseudo maximum likelihood method. Main finding of the paper is that free trade of Armenia with post-soviet countries has had no significant impact on Armenia’s trade flows. Important non-observable trade barriers remain affecting the development of the trade within the union. Further integration will have chances to become effective in case of the elimination of non-tariff barriers of trade.