Trade relations between Hungary and Bosnia and Herzegovina: The evidence from the gravity model

Abstract

With its nominal GDP USD 177.3 billion in 2022, the Hungarian economy is roughly equivalent to the economies of Serbia, Croatia and Slovenia, combined. Yet, these three countries are among the five most important Bosnia and Herzegovina's (B&H) trading partners in exports and imports, while Hungary only ranks eighth among B&H's most significant trading partners. By applying the gravity model, it was found that the basic gravity model (which takes into account only the size of the economy and the distance) is insufficient to explain the volume of trade between Bosnia and Herzegovina and Hungary. Actually, the fact that Bosnia and Herzegovina was once a member state of the Former Yugoslavia still has a significant impact on explaining the international trade of Bosnia and Herzegovina, simultaneously indicating the importance of historical, cultural, and political ties between the countries. The results obtained in this research study pertaining to the ten most significant trading partners of Bosnia and Herzegovina also suggest that the distance between the major cities more strongly influences exports than imports. Taking into consideration the size of the Hungarian economy and the distance, these results suggest that the trade volume between Bosnia and Herzegovina and Hungary is far below the expected level.