The impact of trade on growth: A gravity model-based instrument approach on post-communist Europe

The study is based on the literature started by Frankel and Romer (1999) on using instruments for predicted trade to analyze its effect on growth. It uses panel data to better control for possible time-invariant characteristics. The fall of communism is used as an exogenous shock to the system. The study finds that not all attempts at creating good instruments are successful. However the instruments that perform well lead to results comparable with the existing literature. Trade is found to have a positive and significant effect on a country’s income.