Demand-Based Determinants of Trade: - The Role of Country Preferences

Abstract: A vast amount of research has throughout the years been conducted on the topic of international trade. So far, the main focus has been on the supply-side of the economy, whereas much less attention has been paid to the demand-side. The research that has been done from a demand-side point of view is quite narrow. This thesis aims to examine the role of preferences more explicitly. This is achieved by creating a unique preference variable derived from the Eurovision Song Contest. The preference variable is then, together with a number of other variables, included in an augmented gravity model of trade where its effect on trade is examined using ordinary regression techniques. The results show that preferences indeed affect bilateral trade flows.