Australia's Trade with Asia-Pacific Countries-Evidence from Stochastic Frontier Gravity Model

Abstract

The volume of international trade between Australia and other Asia-Pacific countries has been increasing steadily. The establishment of bilateral trade agreement between Australia and other Asia-Pacific countries provides an important platform and effective mechanism for dialogue among nations. Contributing to existing literature on international trade of Australia, this paper investigates the current situation, potential, and promotion strategies of trade between Australia and other Asia-Pacific countries. Utilizing Python, this paper gathers a massive amount of trade data, and extends the gravity model into a time-varying stochastic frontier gravity model to measure factors affecting the bilateral trade volume. Besides, this paper estimates the bilateral trade efficiency between Australia and selected countries. Based on the estimated efficiency, this paper measures the frontier bilateral trade potential and international trade potential, and the trade potential of each selected country with Australia.