The heterogeneous impact of political shocks on trade: evidence from China–South Korea trade under the THAAD incident

The intention of this paper is to provide "for the first time" a conceptual framework on how a level of IPRs is linked to bilateral intra-industry trade (IIT) flows. The proposed analysis of the relationship between IPRs and IIT of this paper is couched in a simple and intuitive framework that answers a positive question of how intellectual property rights (IPRs-) induced market expansion, and market power effects are related to the horizontal and vertical intra-industry trade flows. The proposed intuitive framework introduces a demand-side approach and a supply-side approach in explaining the link between IPRs and intra-industry trade (IIT) flows. The supply-side approach explores how a country’s IPRs affect its own exports (supply). In contrast, the demand-side approach examines the effect a country’s IPRs have on its own imports (demand). The presented conceptual framework of this paper provides intuitive evidence that in determining bilateral intra-industry trade (IIT) flows in a two-country world, the demand approach posits that bilateral trade flows may increase or decrease due to improvements in IPRs in the importing destination country, while the supply-side approach states that the bilateral trade flows may also increase or decrease due to strong (high) IPRs in the exporting country. Furthermore, the simultaneous effects of both supply and demand on bilateral intra-industry trade flows are simultaneously needed in explaining the effects of strengthening the level of the IPRs on bilateral intra-industry trade flows (IIT).

PurposeThe paper is in the area of international business and international trade. Specifically, this paper aims to focus on cross-border trade flows of goods and services between India and its partner nations.Design/methodology/approachUsing the Cultural, Administrative, Geographic and Economic (CAGE) distance framework (Ghemawat, 2001), this paper provides empirical support for the impact these distance factors exert on the volume of trade in goods and services between countries. The sample used for empirical analysis consists of a set of 62 OECD countries which are involved in trade in goods and services with India over the period 2005 through 2015. This paper estimates a fixed-effects model to provide a comprehensive examination of all the distance factors impacting the bilateral cross-border trade flows of India.FindingsThe empirical findings in this paper show that different dimensions of the CAGE distances have varied influence on volume of trade flows between India and its trading partners. Also, the extent of this influence is guided by the nature of industries – manufacturing or services.Originality/valueDeparting from the common practice in the literature, using the trade flow data for both Indian manufacturing and service sectors separately, this paper examines to what extent is the impact of these distance factors industry driven.

The study aims to investigate Egypt’s bilateral agricultural trade flows with major trading partners. Cotton lint, onions, oranges, potatoes, rice, molasses and vegetables are the paper’s main exportable concern, in which they composes about 82% of Egypt’s agricultural exports throughout the last decade. Panel data for the period 2003-2012 was employed via adopting Gravity model approach in explaining Egypt’s bilateral trade flows. Results revealed that Egypt’s agricultural bilateral export flow is likely to be escalated in proportion to GDP, openness and dummies for border while distance showed a negative relationship towards trade volume. Moreover,the EU is Egypt's main trade partner. More than 30% of Egypt’s exports to the world are directed to EU's 27 Member States, the main export destinations for Egyptian products in the EU are Italy, Germany, Spain, France, UK and Greece.

SummaryThis paper studies the effect of institutions on trade flows, using a gravity model approach. Standard gravity equations incorporate factors such as geographical proximity, language, trade policy and common history as explanatory factors for variation in bilateral trade that reflect the costs of trade across geographical and cultural distance. We extend this type of analysis by focusing on the relevance of the quality of governance and the extent of familiarity with the resulting framework of rules and norms in explaining variation in bilateral trade patterns. More specifically, we test whether institutional homogeneity and institutional quality have an independent impact on the trade volume between pairs of countries. We find that having a similar institutional framework promotes bilateral trade by 13%, on average. Furthermore, a better quality of formal institutions tends to coincide with more trade. Depending on being either importer or exporter, an increase in overall institutional quality of one standard deviation from the mean leads to an estimated increase of 30–44% in bilateral trade.

This contribution is motivated by two observations that do not seem to have been seen in conjunction up to now. On the one hand, when the “French exception” was inserted in the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO), this was motivated by the fear that imports especially of cultural services would undermine a country’s identity. On the other hand, while services presently account for up to 70% of the GDP of major industrial countries, their imports of services lag far behind with less than 20% of total imports. This raises the question of whether the desire to maintain a country’s identity might exert a limiting influence on the trade in services. The analysis combines Lancaster’s new theory of demand with (relative rather than absolute) identity maintenance (RIM) to derive a set of acceptable outcomes of service production in characteristics space. For trade in services to occur, the sets of trading countries need to overlap, resulting in three testable predictions: 1) The more stringent the countries’ RIM, the smaller the volume of services trade between them; 2) In the presence of RIM, the volume of trade in services increases with the similarity of the countries’ preference structures; and 3) in the presence of RIM, the volume of trade in services is the lower, the greater the difference in countries’ incomes. While current evidence supports these predictions, it needs to be completed when more data on bilateral trade flows in services become available.

In order to identify the effect on trade creation and diversion of NAFTA in the North American strawberry market, this study conducts a partial equilibrium analysis by using the CES utility and production functions of Dixit and Stiglitz which provide necessary equations to estimate unobservable final prices of imported strawberries and non-tariff trade costs. Based on the results of this study, we could confirm that 1) the effect on trade creation of NAFTA is greater than the effect on trade diversion, which leads to positive effect of NAFTA on the North American strawberry market, 2) the difference between the local price and the imported price might be due to high non-tariff trade costs that exist between borders, 3) market integration simulation shows trade creation of 453% and no trade diversion, and 4) market segregation simulation shows that trade volume in the regional market decreases by 26% and trade volume out of regional market increases by 1045%.

The abandonment of fixed exchange rate systems has caused exchange rate movements to become a major concern for traders, policy makers and researchers. During the previous four decades of floating exchange rates, numerous studies have been conducted to determine whether exchange rate volatility affected international trade flows. Researchers have not yet reached a general consensus as to the magnitude and direction of the impact of exchange rate volatility on trade flows. This study documents the effect of exchange rate volatility and real exchange rates on bilateral agricultural exports, imports and total trade flows between the United States and OECD countries. The effect of exchange rate volatility is estimated both separately from and in combination with the real exchange rate. In addition, implementation of Free Trade Agreements (FTAs) and use of the Euro as a national currency (Euro) are included as dummy variables and their effect on trade flows is determined. This study uses panel data, which contains 28 cross-sections and 1148 observations, for bilateral trade flows between the United States and OECD countries from 1970 to 2010. Data analysis is performed as guided by the gravity model which assumes trade flows to be directly proportional to economic mass and inversely proportional to geographical distance. Based on the gravity model, the ordinary least squares procedure is applied as the fixed effect one-way procedure for panel data. Effects of exchange rate volatility and the real exchange rate on agricultural, non-agricultural and total exports, imports and trade (exports +imports) flows were found to be statistically significant and negative. Although we were able to replicate the reportedly established notion that exchange rate volatility has an adverse effect on international trade flows, the negative effect that the real exchange rate has on trade flows is a novel finding and bears further investigation. It is found that exchange rate volatility has a greater impact on the agricultural sector, while the real exchange rate has a greater impact on the non-agricultural sector. Effects of FTAs and the Euro are always positive, with FTAs having a greater impact on the agricultural sector and the Euro on the non-agricultural sector.

Background: South Africa’s (SA) largest trading partner is China. The bilateral trade flows between these two economies have been increasing since the end of the global financial crisis. There are several factors that determine the trade flows between these two economies.Aim: The research studies the impact of the real exchange rate, market size and economic size on the trade flows between SA and China, applying the gravity model of trade. Time series data for the period of 1995–2014 have been used and a multiple linear regression model was employed in the evaluation process.Methods: To determine the impact of the three underlying variables on the bilateral trade flows of SA and China, the ordinary least squares method was used. The explanatory variables consist of the product of SA’s gross domestic product (GDP) and China’s GDP, which act as the proxy for economic size, the product of South Africa’s population and China’s population, which act as the proxy for market size, and the real exchange rate between SA and China.Results: Results revealed that the economic size and the market size have a strong positive impact on trade flows between SA and China and this is consistent with economic theory. On the other hand the real exchange rate has a negative impact on trade flows between SA and China.Conclusion: If two countries each have a large economic and population size trade, this results in high trade flows between the countries as compared to trading with smaller economies. Trade volume is also reduced if the countries trading have a highly volatile exchange rate. Based on the findings of the research, the article recommends that the Department of Trade and Industry should target trade with countries of big economic and market size. The research also shows that the absolute and comparative advantages are not the only basis of trade but other factors should be considered, such as exchange rate, economic size and market size. The central bank should maintain a stable exchange rate between the SA rand and partner countries’ currencies before trading. This enhances trade and leads to strong economic growth.

Empirical research in international trade is constrained by the absence of a reliable, exhaustive data base on bilateral trade flows among regions. The United Nations data base on bilateral merchandise trade flows among countries is the most complete source of such data. However, it is notably unreliable. The purpose of this paper is to report on a statistical procedure for estimating systematic reporting biases, by region, for this particular data base. This serves two purposes. First, it offers a concrete quantification of one dimension of the reporting problem. Secondly, with these reporting biases in hand, it is possible to adjust the data. That is, one can create a set of bias-corrected trade flows. The proposed procedure capitalizes on the fact that the UN bilateral trade data base contains two observations on every trade flow, at any point in time. Our statistical model seeks to explain the discrepancy between reported exports from country i to country j at time T, and reported imports by j from i at T. Systematic discrepancies are attributed to c.i.f./f.o.b. margins and reporting biases by the two countries in question. We estimate the model using trade flows among OECD countries over the period 1962-1987. Merchandise trade is grouped into eight categories. Preliminary results indicate that the reporting of Japanese import flows and U.S. export flows are unbiased. Both exports from, and imports to Australia exhibit statistically significant reporting biases. In particular, exports are systematically underreported (by 11.5%), while imports are systematically overreported (by 4.4%). A similar pattern exists for New Zealand, while the opposite is true of the European Community. Canada, on the other hand, appears to overreport both exports and imports. Some of these results may be due to the simple approach which we have taken to modeling the transportation and insurance margins. Future research will attempt to improve this aspect of the model. We will also attempt to estimate reporting biases for non-OECD regions.

The purpose of the study is to investigate the impact of market anomalies (days of the week), political shocks, and COVID-19 on Pakistan Stock Exchange (PSX). The analysis employs dummy variables for capturing the effects of the variables i.e., days of the week, political shocks, and COVID-19. Generalized AutoRegressive Conditional Heteroscedasticity (GARCH) model was used for the empirical research of the volatility of stock returns by using a sample period of daily data from 11 January 2016 to 30 April 2021. Result showed that Friday had a negative, and Wednesday had a significant positive impact on stock returns. While Monday, Tuesday and Thursday were found insignificant. Twenty-two notable political shocks were investigated during the study period except the visit of Saudi-Prince King Salman. A decrease in oil prices during March-2020 showed no impact on stock return, while other political shocks significantly affected stock returns. Moreover, COVID -19 waves had a significant positive effect on stock returns

The purpose of this paper is to empirically analyze Korea's trade patterns based on the gravity model and to suggest possible ways to expand trade by identifying important factors determining Korea's bilateral trade flows. The gravity model assumes that trade flows between two countries are positively related to their economic size and negatively related to the distance between them. In this paper, new explanatory variables, such as the Trade conformity Index and APEC membership, were also included in order to examine the peculiarity of Korea's trade patterns ? whether they follow the Heckscher-Ohlin model or the Differentiated Product Model ? and to estimate the influence of a regional economic bloc on Korean bilateral trade flows. According to the regression results of the analysis, it was found that Korea's bilateral trade patterns fit the basic gravity model well and that inter-industry trade, as explained by the Hckscher-Ohlin model, is more prevalent in Korea's international trade. Therefore, in order to expand bilateral trade volumes, it spears to be more desirable for Korea to promote bilateral trade with countries in close proximity and having large economies. However, Korea's actual trade volumes, with countries like Japan and China which, in terms of economic size and distance, present greater advantages, seem to fall short of the trade volumes predicted by the gravity model. This implies that there are significant trade barriers between Korea and these countries. Therefore, by promoting a deeper form of trade liberalization with both Japan and China, Korea is expected to fully exploit its trade potentials and maximize the gains from trade.

In this article, the authors examine the relationship between the volatility in exchange rates and the volume of international trade in sub-Saharan African countries. Using the gravity equation and annual data for the period 1998–2007, they find a statistically significant and negative correlation between the volatility in exchange rates and the volume of trade. The estimated elasticities show that the responsiveness of the flow of international trade to changes in exchange rate volatility is very small. This suggests that eliminating the volatility in the exchange rates will result in only small increments in the volume of trade. Accordingly, pursuing a policy of exchange rate stability would not be sufficient to significantly increase the volume of bilateral trade in the sub-Saharan African region.

The objective of this research is to identify the component of trade that results specifically from bilateral relations and evaluate how the creation of trading blocs affects trade relations between countries. The trirapport coefficient of the relative intensity of bilateral agricultural sector trade flows between Brazil and other countries from 1984 and 1998 is used in the evaluation. In general, the results show that relative trade intensity between Brazil and its non-MERCOSUL trade partners fell after their entry into regional trade agreements (extra-bloc effect). The intra-bloc effect (trade expansion) is reflected by changes in trade intensity between Brazil and the other MERCOSUL members and changes in trade intensity between NAFTA members Mexico, Canada, and the United States.

(ProQuest: ... denotes formulae omitted.)1.INTRODUCTIONIntroduction of floating exchange rate regime in early seventies has presented exchange rate uncertainty to traders and possibility of negative effects on trade between nations. However, theoretical developments have produced models that predict the effects of exchange rate volatility on trade could also be positive if traders maximize trade today in order to cover part of future loss due to exchange rate uncertainty. Regardless of the outcome, each nation follows its own recourse to meet this challenge. For example, countries may adopt floating exchange rate, pegged rate, managed rate, etc. Exchange rate regimes in both Singapore and Malaysia are fairly similar. Monetary Authority of Singapore (central bank) adopts a managed float regime which allows the Singapore dollar to fluctuate within a band. Similarly, Bank Negara Malaysia (Malaysia's central bank) implements comparable policy. Although both exchange rates float within bands, still the real exchange rate between Singapore dollar and Malaysian ringgit could experience volatility outside a given band due to differential inflation rate in Singapore and Malaysia. Figure 1 highlights the degree of volatility of the real exchange rate between Singapore dollar and Malaysian ringgit.Has this volatility affected trade volume between Singapore and Malaysia? In trying to answer such questions we usually rely upon predictions from past models and estimates. In trying to learn past studies we come across the most recent review articles by McKenzie (1999) and recently by Bahmani-Oskooee and Hegerty (2007) who provide a detail theoretical and empirical review of the impact of exchange rate volatility on trade flows. From these review articles we gather that a few studies have included Singapore in their list of countries. Bahmani-Oskooee and Payesteh (1993) used standard Ordinary Least Square method to investigate long-run effects of exchange rate volatility on import and export volumes of six countries: Greece, Korea, Pakistan, the Philippines, Singapore and South Africa. In the results for Singapore they find no significant effects. Suspecting that the results could suffer from spurious regression problem, they then relied upon Engle and Granger (1987) cointegration method and showed that indeed the variables are not cointegrated. Since Engle and Granger (1987) method does not allow feedback effects among variables, Bahmani-Oskooee (1996) adopted Johansen's cointegration technique which allows feedback effects among variables of a given model. In the case of Singapore, although he finds cointegration among the variables of both import and export demand models, measure of exchange rate volatility carries an insignificant coefficient in the import demand model but significantly positive coefficient in one vector and negative coefficients in two vectors. The negative effects is also confirmed by Poon, et al. (2005) who used, again, the Johansen's method but only export volume of Singapore in addition to exports of Indonesia, Japan, South Korea, and Thailand.The mixed findings by the above studies do suffer from aggregation bias in that they have used trade flows of Singapore with the rest of the world. To reduce the bias another set of studies assess the impact of bilateral exchange rate volatility on bilateral trade flows between two countries. Unfortunately, no study has included Singapore as a trading partner.1 In this paper we try to assess the impact of exchange rate volatility on the trade flows between Singapore and her major trading partner Malaysia. However, following the recent trend we disaggregate the bilateral trade flows between the two countries by commodity and investigate the short-run and long-run effects of real exchange rate volatility on 22 industries in Singapore that import from Malaysia and 26 industries that export to Malaysia.2 These industries in each group conduct more than 84% of the trade. …

Aim/Purpose – The study focuses on trade creation and trade diversion effect in the Economic Community of West African States (ECOWAS) regional trade agreement. It examines if the ECOWAS regional trade agreement has brought about trade creation and/or trade diversion before the period of ban on certain items of importation by the Nigerian government as against the terms of the agreement. 
 Methodology – The study uses augmented gravity model. Estimations were carried out on bilateral trade flows, trade creation and trade diversion within the region. Secondary data (2008-2018) were obtained from reliable sources. Ordinary least squares (OLS) and panel data regression was used to analyze the data. 
 Findings – It was found that the GDP (wealth), population and political stability of the exporting countries will significantly foster intra-regional bilateral trade flow while variables like land area, landlocked and distance will significantly reduce bilateral trade flow in the region. The population, landlocked, political stability and corruption perception variables of the importing countries are found not to be statistically significant. R2 being the coefficient of determination falls between 54.8% and 63.3% which implies that the independent variables have been able to explain 54.8% to 63.3% of the total variations in the dependent variable.
 Research implications – Membership of some of the ECOWAS members in Global System of Trade Preferences among developing countries (GSTP) was found to have resulted in trade diversion; whereas, participation of some of ECOWAS members in West African Economic and Monetary Union (WAEMU) has contributed to the level of trade creation in ECOWAS region.
 Originality/value/contribution – The level of trade creation in the ECOWAS region can be improved upon provided all member states adhere strictly to the terms of the agreement.