ESTIMATING GRAVITY MODEL FOR THE CZECH REPUBLIC: EMPIRICAL STUDY OF IMPACT OF IFRS ON THE CZECH INTERNATIONAL TRADE

According to the gravity model, countries are trade relieson their proximity and relies on the size of their GDP. Negative influence is played by trade barriers and positive by common traditions and common political background. Big countries trade a lot between each other, e.g. the USA and Canada on the same continent or the USA and Germany in different continents. Smaller countries, like the Czech Republic, do not have such an impact on the scale of world trade. The size of exports/imports is influenced by the fact whether or not they are part of some trading bloc, e.g., the EU in Europe or NAFTA in America. Accounting rules, namely IFRS, are expected to be perceived as a positive influence on the world trade of a particular country and on a country's FDI (Foreign Direct Investment). In this paper, we test the influence on foreign trade and FDI of using the gravity model within the EU. The influence of IFRS is also tested, although we might expect that its influence will be smaller than that of other factors. Contrary to our expectations, we have found that the influence of IFRS is not insignificant and is more pronounced after the year 2010 which coincides with the change of local regulations. This finding establishes an interesting signal relating to perceiving the increasing quality of the Czech economic environment including accounting regulations.