Portugal's foreign trade grew from the 20th century onwards, with the opening up of the economy, the development of industry and a marked diversification of goods for export. The focus on industrialisation began above all in the 1960s, driven by imports of investment goods from developed countries (mostly the countries that make up the current European Union).
For many years, Portugal's foreign trade was marked by a strong balance of payments deficit (even after joining the European Community bloc), associated with this deficit is the continuous import of goods and services. Exports at the time were mainly covered by wine, but products such as footwear and clothing made up the diversification mix, as well as other products that emerged as a result of the diversification of exports at the time and some agricultural products.
Despite the low level of qualification, substantial gains in added value were made when footwear, clothing and other industrial products began to be exported instead of bulk wine and other food products. These gains are mainly reflected in the evolution of the terms of trade. (Afonso & Aguiar , 2004 ).
The main destination for Portuguese exports has always been the European Union (EU) countries, especially Spain, Germany and France, which account for 21.70 per cent, 11.10 per cent and 13.40 per cent respectively. Portugal's entry into the European Community bloc has strengthened existing bilateral economic relations and has had a major impact on the Portuguese economy. The main impacts on the Portuguese economy following its accession to the European Economic Community (EEC) are analysed below (Amaral, 2006 ) ,
where three periods are considered: the period immediately following accession, in which the impact was clearly positive, allowing the Portuguese economy to grow at a relatively high rate; the period of preparation for the single currency, in which problems of external competitiveness arose due to the macroeconomic policy followed and the changes in world trade; and finally the period from the creation of the single currency to the present day, in which the Portuguese economy has fallen into crisis and in which the high level of indebtedness strongly conditions the possibilities for future growth, I concluded.
In recent years, Portugal's trade balance has shown continuous improvements, due on the one hand to the financial bailout requested from the IMF and ECB, and on the other hand to the growth in diversified exports and the increase in the level of output, driven mainly by substantial improvements in the industrial sector and a strong presence of foreign capital investments in the country. Also noteworthy is the expansion of exports to markets such as the United States of America, which is considered to be the largest destination for Portuguese exports in extra-EU trade, accounting for 5.5 per cent of exports in 2017, according to data from the European Commission (AICEP, 2017).
However, there are a number of studies that seek to analyse the foreign trade of a given country with its respective partners. In the current approach, the aim is to analyse foreign trade between Portugal and regional economic blocs considered to be relevant in bilateral relations, such as the European Union, the group of Portuguese-speaking African countries (PALOP), and to analyse economies with a high level of economic relevance such as Brazil, China, Russia, South Africa and the United States of America (USA).
The aim of this study is to analyse Portuguese foreign trade by applying the gravity model, thus applying the following hypotheses that naturally guide the study:
H1: What factors influence Portuguese foreign trade with the partners under analysis;
H2: Are real effective exchange rates and distances relevant in explaining bilateral trade between Portugal and the regional blocs?
H3: Other factors in the economies under analysis influence Portuguese foreign trade with its partners;
H4: Are language and distance relevant to foreign trade. The general objective of this study is to analyse the relevant factors that explain foreign trade between Portugal and the regional blocs and major economies under analysis.
The application of gravity models in economics has been recurrent, given the lower complexity that these models present when approaching foreign trade between two partner countries, from one country to a group of countries or more broadly between the main regional economic blocs, as seen in (Martinez-Zarzoso, 2003), analysing the application of the gravity model to foreign trade between regional blocs, the authors estimated bilateral trade flows between 47 countries. The results show that the variables traditionally included in the equation present the expected signs and highlight the role played by intra-bloc effects, the estimated coefficients presenting, in most cases, the expected signs. The income elasticity of the exporter is higher than the income of the importer, which indicates the importance of a country's production capacity and export promotion.
(Kien, 2009 ) analyses the implications for the ASEAN free trade area, for the period 1988-2002 the results show that export flows increased proportionally with GDP, other results point to the significant increase between members resulting from the formation of AFTA.
(Rojid, 2006),explores COMESA's foreign trade potential by applying the Gravitational model, the results show that the coefficients on the observable effects that determine bilateral trade, except for the real effective exchange rate, have the expected signs and are significant. COMESA appears to be a building block; that is, the bloc has liberalised trade more internally than it has diverted trade from the rest of the world. According to the authors, these results suggest that COMESA's trade potential within the region is limited. In fact, the results suggest that the members of the COMESA trade bloc are over-trading within the region. The greatest trade potential exists for Angola and Uganda.
(Boughanmi, 2008 )analyses the trade potential of Arab Gulf cooperation. The results indicate that, despite the fact that the share of the Arab Gulf Cooperation Countries (GCC) Intra trade is too lower in absolute terms, it is actually higher than expected, based on the underlying trade determinants. However, GCC intra-trade levels have not changed significantly over the years and probably reached their full potential during the first decade of the GCC's creation. Trade with the Mashreq countries is higher than expected, while it is lower than expected with the Maghreb countries, despite the implementation of GAFTA a decade ago. The GCC's trade with the European Union and the US was found to be quite intensive even though there is no formal trade agreement between the GCC and either bloc for the period used in the analysis. The results suggest that the recently signed trade agreements are promising in increasing new trade opportunities in the GCC region.
(Carrillo , C., & Li, 2004) , apply the gravity model to analyse Latin American countries from 1980-1997, examining the effects of the Andean Community and Mercosur on intra-regional and intra-industry trade. The authors found the following results: taking into account the effects of distance and competitiveness, the Community's preferential trade agreements have a significant effect on benchmark products and a marginal effect on differentiated products, particularly in capital-intensive goods; Mercosur's preferential trade agreements had a positive significant effect only on the capital-intensive subcategory of the benchmark.
(Soloaga & Winters, 1999) explore regionalism, applying the gravity model to analyse fuel imports in the period 1980-1996 for a group of 58 countries. The results, according to the authors, show no indication that the 'new wave' of regionalism has significantly boosted intra-bloc trade. Regarding trade diversion, the authors found convincing evidence of this only for the EU and EFTA (and also for the same blocs, they observed export diversion, which would be consistent with their imposition of a welfare cost on ROW). Trade liberalisation efforts in Latin America have had a positive impact on imports from bloc members (ANDEAN, CACM, LAIA and MERCOSUR), although MERCOSUR's exports declined in the latter part of the sample.
(Piani & Kume , 2000)analysed bilateral international trade flows between 44 countries, comparing the weight of the influence of trade preferences with that of other determinants of trade, such as geographical proximity between countries, absolute and per capita income levels, adjacency and common languages. The results of the study show the importance of the various types of regional free trade agreements in creating an extraordinary level of trade between member countries in all six blocs, regardless of whether they are made up of developed countries or not.
(Blavy, 2001 )when analysing foreign trade in Masreq, the results show that at the intra-regional level, specific trade barriers between Israel and other Mashreq countries further reduce trade levels. Quite surprisingly, removing Israel from the sample leads to higher real intra-regional trade than expected. The analysis suggests that liberalising trade, correcting currency misalignments, reducing political uncertainty, and improving trade relations with Israel would boost trade in the region.
(Blavy, 2001 )when analysing foreign trade in Masreq, the results show that at the intra-regional level, specific trade barriers between Israel and other Mashreq countries further reduce trade levels. Quite surprisingly, removing Israel from the sample leads to higher real intra-regional trade than expected. The analysis suggests that liberalising trade, correcting currency misalignments, reducing political uncertainty, and improving trade relations with Israel would boost trade in the region.
The European Union is by far an important regional economic bloc, given the large flows of trade handled by its countries. Close behind it is the Southern Common Market (MERCOSUR), an important community bloc in the southern hemisphere (García , Pabsdorf , & Herrera, 2013).
The authors study annual exports between 75 countries from 1980-2008, and the results show that the influence of the agreement on trade has been positive, but moderate. As a whole and with positive effects, the authors also emphasise that agreements can be strengthened with the deepening of relations and the entry of new members.
1.1 Brief considerations of Portuguese foreign trade with the economies under analysis
Portugal has perfect bilateral relations with its partners, especially those that are considered to be strategic allies and have a huge importance in economic relations, so in recent years foreign trade with the main partners has shown significant improvements, both in terms of the trade balance and in terms of export flows, with emphasis on relations with the European Union economic bloc, which accounts for 74% of foreign trade, according to INE data.
With regard to other partners such as the UK, which is of great significance to Portugal, relations have been stable and favourable in recent years, with the trade balance between these two countries being significantly stable, despite the "Grexit". From January to September 2017, 7.9% of exports and 4.3% of imports of Portuguese goods and services went to the British market. The USA is Portugal's biggest economic partner outside the EU, accounting for around 5% of Portuguese exports and a favourable trade balance. Given its economic size, China is a major market for Portugal, especially as a supplier and a major investor, and the share of capital coming from China in large Portuguese companies should be emphasised. As far as Portuguese-speaking economic partners are concerned, the PALOP group represents an extremely important market as clients, while Brazil stands out as a very important partner for the Portuguese economy. The trade balance between Portugal and Brazil is positive, with an emphasis on exports of goods and services. Russia and South Africa are no less important, both with a positive trade balance. Figures 1 and 2 show, interactively and explicitly, the foreign trade between Portugal and the regional blocs under analysis.
The graph in Figure 2 shows Portugal's exports with its partners for the periods analysed, where we can see a marked increase in Portuguese exports to the European Union, which is the largest destination for Portuguese exports, followed by the Kingdom, in line with the data from our analysis of Portuguese foreign trade with partners by regional bloc.