Research on the determinants of bilateral trade between Romania and its major trading partners: panel data analysis based on the GLS gravity model

Based on the gravity model theory, this paper studies the determinants ofbilateral trade flows between Romania and its main trading partners from 2010 to2023. The research goal is to explore the role of economic size, geographicaldistance, institutional arrangements and foreign direct investment stock in promotingtrade. To this end, this paper constructs an extended gravity model, using thegeneralized least squares method (GLSAR) and introducing a first-orderautoregressive correction to deal with serial correlation and improve estimationaccuracy. The model introduces variables such as GDP lagged term, FDI laggedterm, geographical distance, border relations, Schengen membership and EUmembership. The results show that economic size and geographical proximity arethe core factors determining trade flows, while institutional integration andinvestment also have a significant driving effect on trade relations.