THE IMPACT OF COMPETITIVENESS ON TRADE EFFICIENCY: THE ASIAN EXPERIENCE BY USING THE STOCHASTIC FRONTIER GRAVITY MODEL

Abstract

The purpose of this study is to examine the bilateral machinery and transport equipment trade efficiency of selected fourteen Asian countries by applying stochastic frontier gravity model. These selected countries have the top machinery and transport equipment trade (both export and import) volumes in Asia. The model we use includes variables such as income, market size of trading partners, distance, common culture, common border, common language and global economic crisis similar to earlier studies using the stochastic frontier gravity models. Our work, however, includes an extra variable called normalized revealed comparative advantage (NRCA) index additionally. The NRCA index is comparable across commodity, country and time. Thus, the NRCA index is calculated and then included in our stochastic frontier gravity model to see the impact of competitiveness (here measured by the NRCA index) on the efficiency of trade.