Bilateral Trade Flows and Cultural Factors: The Case of the Philippines and Its Partner Countries Using the Gravity Model of Trade

Abstract

This study attempts to explain the volume and pattern of international trade activities of the Philippines with its trading partners, by looking at economic and noneconomic, cultural factors using an extended version of the gravity model of trade (GMT). The GMT reveals the strong effects of gross domestic product (GDP) and distance on trade. The empirical results also show that noneconomic and cultural factors, like religion and colonial history, are important in explaining trade patterns of countries. In general, this study suggests that overall trade policy and industrial program should be designed to consider not only the economic aspects, but also the noneconomic and cultural factors that can increase international trade activity and encourage a more prominent role of the Philippines in the world economy.