Analysing Developing Countries' Export Potential: Insights from the Gravity Model and PPML Methodology for the Case of Kosovo

The Gravity model is considered as one of the most important models in foreign trade, respectively in exporting power, to explain the main determinants of exported goods and the competitive situation towards other countries. This paper aims at showing the export potential of Kosovo with transition countries, in order to explain the bilateral flow of trade determined by- GDP, population and distance. In addition to these variables, this research has also considered other variables such as border proximity, colonial ties, common language, level of corruption and institutional quality. The main findings of this study suggest that the flow of the exports increases with the increase of economic size while distance is presented as a highly influential variable, i.e., geographical proximity affects the export dynamics where with increasing distance the export flow also decreases. Also, other variables such as colonial ties, common language and common past in a socio-political system make Kosovo's exports oriented towards Albania, Montenegro, Bosnia and Herzegovina and Macedonia. In addition to over-exploiting Kosovo's export potential with neighbouring countries, Kosovo does not fare well with other transition countries with which it has not used enough where one of the recommendations in this paper provides that Kosovo should create promotional policies in other countries to improve the export balance with those countries such as: Bulgaria, Romania, Estonia, Malta, etc.