GRAVITY MODEL OF TRADE OF THE CZECH AND SLOVAK REPUBLICS 1995-2012: HOW HAVE DETERMINANTS OF TRADE CHANGED

The paper uses Heckman correction to estimate gravity models of trade of the Czech and Slovak Republics for the period 1995-2012. Additionally, separate gravity models are estimated for 4-year panels of the period using Tobit method. The research shows that importance of common border for the countries' bilateral trade with third countries has been gradually declining. This is in line with accelerating globalization and lower shipping prices. On the other hand, contrary to expectations importance of distance in bilateral trade has not been decreasing; it appears that the so-called "distance puzzle" is present in the Czech and Slovak Republics. The model also confirms that membership in the European Union is an important determinant of bilateral trade its statistical significance has been detected since 2004.