International trade, distance, and economic structure: the case of Central Asian and South Caucasus countries

We apply an augmented gravity model to examine the impact of economic structure on bilateral trade flows among the Central Asian and South Caucasus countries. We find nuanced effects of economic complexity, innovation, and resource dependence on trade elasticity with respect to income and distance barriers. Greater economic complexity of both trade partners and resource dependence of importing economy weaken the effect of market potential on bilateral trade. Similarly, greater economic complexity and higher innovation activities of importing economies diminish the negative effect of distance. However, in some instances, high innovation activities of importing economy increase the size barrier, and greater innovation and higher resource dependence of exporting country reinforce the distance barrier of trade flows. We also analyse the temporal effects and the role of political environment. Our findings provide important insights for the role of economic structure on decreasing distance and size barriers of trade.