DISENTANGLING TRADE DYNAMICS: COMPARATIVE GRAVITY ANALYSIS OF CROSS-BORDER GOODS AND SERVICES FLOWS

This paper provides a comprehensive examination of international trade patterns through the lens of the gravity model, focusing on the nuanced distinctions between merchandise goods and service trade. By synthesizing theoretical foundations and empirical advancements, it highlights the challenges and complexities inherent in modeling trade in intangible services compared to physical goods. The research delves into the multifaceted determinants of trade costs-including economic size, geographic distance, cultural proximity, regulatory barriers, and digital transformation-showing how their influence varies across sectors. Emphasis is placed on the evolving role of service trade in global value chains, with particular attention to modes of supply and sector-specific heterogeneities. The paper underscores the critical importance of incorporating multilateral resistance terms and advanced econometric techniques to accurately capture trade flows in both goods and services. Findings suggest that while gravity equations remain a robust tool for international trade analysis, adaptations are necessary to address the unique features of service trade. This work advances understanding of trade integration and policy implications in an increasingly interconnected and service-oriented global economy.