The role of governance and market openness on bilateral trade flows of South Korea with CEE and CIS countries

Abstract

Employing an intercountry trade force (ITF) theory, this paper investigates bilateral trade between South Korea and 28 economies of Central Eastern Europe (CEE) and the Commonwealth of Independent States (CIS) based on balanced panel data for the period from 2011 to 2019. Free trade space (FTS) and gravity index (GI) turned out statistically significant and their coefficient signs are in line with the research hypothesis. Our model also confirms that bilateral trade volumes are highly enhanced by the quality institutions of CEE and CIS countries. The impact of their good governance becomes larger in relation to South Korea's exports to those countries. A level of market openness (measured by FDI ratio and WTO membership) does not facilitate bilateral trade volumes, in general. However, WTO membership turns out to be a significant and positive factor in promoting CEE and CIS countries' exports to South Korea. Therefore South Korea must strive to enhance the institutional quality of CEE and CIS countries to ease the process of customs clearance and the conclusion and enforcement of trade contracts, and reduce transaction costs. Liberalizing economies based on internationally acknowledged economic principles will continue to enhance CEE and CIS countries' exports to South Korea.