Abstract:

The trade theory seeks to identify the variables determining international exchange between countries. In recent years, variables not traditionally considered in traditional models, such as geographic location, the cost of transport, and cultural and institutional factors have emerged as important explanatory variables, and therefore need to be incorporated in the analysis. In order to make new contributions, this paper contains an extended business gravity model with panel data and random effects that combine institutional, economic and cultural changes as one of the determinants of bilateral flows between the country of origin (Germany) and its trade partners (Latin-American region) during the period 1995-2011, through the use of different aggregate indicators, incorporated as explanatory variables in different design specifications.  The main objective of this research is to analyze the determinants of trade between Germany and Latin America with an extended/modified model of trade where the economic characteristics of countries are combined with the institutional and policy factors of trade, such as trade agreements. The strong determinants of international trade between Germany and Latin America are free trade agreements, property rights index and corruption index.