Dynamics of Catalan International Trade a Gravity Approach

ABSTRACT

Since the Middle Ages, Catalonia has been an open nation, keen to trade internationally. In recent decades, the region's commitment to commerce has yielded remarkable growth, with data from the early 1990s revealing a dramatic surge in Catalan international trade. Notably, in 2023 alone, Catalan exports increased by over 6% compared to the previous year.

Over the past 15 years, Catalonia has consistently maintained a positive trade balance, often exceeding 10% of its Gross Domestic Product (GDP). Impressively, exports have emerged as being one of the most important Catalan economic activities, accounting for nearly a third of the nation's GDP in 2023. Such figures clearly outstand, especially when compared with neighboring countries like Spain, France, and the broader European Union.

This paper embarks on a comprehensive examination of the evolution of Catalan trade, focusing on both its primary trading partners and leading sectors in the international market. Utilizing cutting-edge network analysis techniques, the study aims not only to compute informative metrics such as density and connectedness but also to offer clear visualizations of Catalan trade dynamics.

Furthermore, the paper will dive into the determinants of Catalan imports and exports, employing a Structural Gravity approach. This analytical framework deconstructs Catalan trade into three distinct components: Catalan-sector specific, “foreign country”-sector specific, and a bilateral Catalan-“foreign country”. While the former components can be easily retrieved using fixed effects in regression models, the latter, bilateral, component is explained through traditional gravity controls such as distance, Preferential Trade Agreements (PTAs), Bilateral Investment Treaties (BITs), among others. This bilateral component will shed light on how Catalonia leverages trade and investment agreements to foster international trade.

Moreover, given the interest in the Catalan side, the study will try to unpack the Catalan-sector specific fixed effect by leveraging on firm-level data sourced from Bureau van Dijk’s ORBIS dataset. By aggregating this data to match sector-level specifications, the analysis seeks to explain sector characteristics such as investment intensity, specificity, and competition, and their impact on Catalan trade flows.

Overall, this study aims to, first, provide a detailed description of the evolution of Catalan international trade and, second, explain its main determinants both at a bilateral and at a Catalan level. The research aims to offer valuable insights into the driving forces behind Catalonia's trade performance, thereby informing policymakers, researchers, and stakeholders alike.