Augmented Gravity Model Research Articles

The relationship of Arab economic integration to foreign direct investment in the Arab countries: Impact analysis using the augmented gravity model

The relationship of Arab economic integration to foreign direct investment in the Arab countries: Impact analysis using the augmented gravity model

ANALISIS DETERMINAN EKSPOR PROVINSI SUMATERA UTARA: PENDEKATAN GRAVITY MODEL

Export Growth has been being one of important component in enhancing of economic growth of North Sumatera Province. During 2005-2010, the average growth of export rate of North Sumatera Province is 16,5 percent per year with 5,23 percent per year the average of it’s contribution to growth. The aim of this research is to detect the factors which affect the enhancement of export rate of North Sumatera Province during 2005-2010. With augmented gravity model approach, this research analyzes the effect of gross domestic product percapita rate and the population of each trading partner countries, geographical distance between North Sumatera Province and every trading partner countries, foreign direct investment and real effective exchange rate of North Sumatera Province, to the export rate of North Sumatera Province to every trading countries, such as United States of America, Netherland, China, India, Italy, Japan, Malaysia, Egypt, Singapore, and Ukraine. By using random effect model in pooled data processing, the result of this research describes that the gross domestic product percapita and the population of each trading partner countries affect positively and significantly to the export rate of North Sumatera Province. As well as foreign direct investment rate and real effective exchange rate of North Sumatera Province show the positive and significant effect. Whereas, geographical distance as the trade barrier, correlate negatively and significantly to the export rate of North Sumatera Province.

Estimation of the East African Community's trade benefits from promoting intra‐regional trade

AbstractIn the literature on economic integration, the optimum currency area (OCA) theory says that there should be a high degree of trade between potential members of a monetary union for them to benefit from the use of a single currency. This study uses an augmented gravity model of trade to estimate the East African Community's (EAC) trade effects, as this community decided to participate in a monetary union by 2024. The study uses the fixed effect filter (FEF) estimator, which follows a two‐step approach and outperforms the standard fixed effects (FE) estimator. The results indicate that EAC has the potential to increase trade among partner states by 122% more than expected from the normal trade levels. The study, therefore, supports the ongoing East African Monetary Union process. However, to improve the likelihood of creating a more sustainable monetary union, the study recommends these countries to primarily focus on the full implementation of the customs union and common market steps. The main contribution of this study is that it provides robust estimates of the EAC's effects on intra‐regional trade using more recent data and updated econometric techniques.

Globalization and India’s international trade: does distance still matter?

This paper attempts to capture the missing ‘distance’ puzzle in the globalization process driven by trade flows. It is widely recognized that the growing global economic integration process play a major role in the spatial restructuring of many countries at varying geographical scales. The paper illustrates a model of international trade flows that builds upon existing research on the geographies of global trade. Empirical results of the current study indicate that the basic and augmented gravity model provides a useful framework for understanding international trade. The evidence of map pattern in residuals across temporal scale is noted. The results further indicate the importance of distance in the Indian context. An identification of the patterns and determinants of India’s international trade with 87 countries suggests that potentially important differences in regional demands and country specific factors may impact the trade interaction over the years.

Dynamics of tourism demand in Turkey: Panel data analysis using gravity model

Turkey, an emerging economy, ranked 8th among the most visited countries in the world in 2017. Given the importance of the tourism sector in Turkey, it is of utmost importance to identify the dynamics of tourism demand to achieve sustainable tourism. The aim of this article is, therefore, to explore the demand-side factors that affect the number of international tourist arrivals to Turkey. To this end, an augmented gravity model has been employed to analyze the factors affecting the number of international tourists visiting Turkey from the top 25 originating countries from 1998 to 2017. The results show that the gravity model is very effective in explaining the tourist arrivals to Turkey. Empirical findings suggest that per capita income of both origin country and Turkey, relative exchange rate, and globalization positively affect the demand for tourism, while it is negatively affected by consumer price index, violence/terrorism, household debt level, and bilateral distance between Turkey and the origin country.

Quantifying market potential for sustainable air connectivity improvement – A counterfactual analysis based on augmented gravity model estimates

Governments and policymakers aim to promote the air connectivity of their airports and cities. However, improved air connectivity is sustainable only if the associated aviation market potential is sufficiently large. Although qualitative and quantitative studies have identified the key determinants of aviation demand, few publicly available studies have quantified the market potential of direct flight services. This study estimates an augmented gravity model based on historical data on actual traffic volume, flying distance and market structure indicators. The estimates are then used to conduct a counterfactual analysis to predict the market potential if direct aviation services were offered on the candidate routes, so that the most promising routes can be identified and ranked. The approach is applied to examine the cases of large airports in mainland China and the UK. Our analysis offers insights on the potential of individual markets and concludes that it is possible to sustain more direct aviation services out of second-tier hub airports in China and Europe. Policy and financial support on these routes are likely to be sustainable, beyond which caution may need to be exercised for one-shot investments.

Formalizing Informal Cross-Border Trade: Evidence From One-Stop-Border-Posts in Uganda

Informal trade is pervasive between sub-Saharan African countries. This study examines the relationship between trade informality and trade costs. More specifically, using an augmented gravity model, I exploit time and custom point variation in the introduction of a border facility which is aimed at reducing border delays and corruption. I find a significant decrease in trade informality in the second quarter after the introduction of an OSBP, with indications that this change is mainly driven by a fall in large-scale informal trade. I examine whether this result can be explained by formalization of individual cross-border traders by using first-hand data set of traders operating at two border towns between Kenya and Uganda. I find that few traders formalize despite the reduced costs associated with the introduction of the border facility, and that trade costs and border crossing choices are not only associated with export restrictions, but are also gendered.

Modelling Tourism Demand: An Augmented Gravity Model

This paper aims to investigate the factors affecting tourism demand in Sabah using an augmented gravity model. In modelling tourism demand, a balanced panel data set of ten countries over 2010-2016 is analyzed using the static panel data approach. The income levels in tourist origin countries and the income level in Sabah are positively affecting Sabah tourism demand. Meanwhile, transportation costs and tourism prices adversely influence tourism demand in Sabah.

Driving Forces of Marine Fisheries and Seafood Export of Bangladesh: Augmented Gravity Model Approach

Due to the gradual expansion of marine fisheries and seafood trade in the world market, marine economic sectors are emerging as an influential catalyst for the economic growth of Bangladesh as it possesses a long marine water area. This study aims at finding out the driving forces of marine fisheries and seafood export of Bangladesh. It applies augmented gravity model for a panel dataset of 40 countries of 1990-2011 and 17 countries of 2005-2011 for marine fisheries and seafood respectively and uses distance, two dummy variables namely regional trade agreement (RTA) and food safety standards (HACCP) along with some key macroeconomic variables. Some sensitivity tests have been conducted to obtain robust results. The mixed findings suggest that both RTA and HACCP have significant negative impact on the export of marine fisheries whereas RTA shows a positive impact on the export of seafood. Distance does not have a significant impact on either of the cases.

Izvozni potencijal vojne industrije Srbije

This paper empirically tests an augmented gravity model of international trade in order to investigate the impact of various factors on the volume and direction of export of the Serbian defense industry. The results show that military expenditure, arms import and a dummy variable referring to historical ties in arms trade have positive effects, while, on the other hand, population, distance and degree of industrial development of partner countries have negative effects on Serbia's military export. The study resulted in three empirical models, all with a high coefficient of determination but different statistical significance of variables. One of them was selected and applied to all export partners of the Serbian defense industry. Out of 61 countries, 21 were determined as target markets based on the combination of two criteria - the trade potential index, determined by the application of the gravity model, and trade dynamics.

Razvoj infrastrukture, institucija, trgovina unutar regiona - slučaj istočne Afrike

This study empirically examines the relationship between infrastructure stock and bilateral trade flows using a panel of 11 countries in East Africa for the period 2000 to 2018. Infrastructure augmented gravity model was estimated using total bilateral exports for the countries in East Africa. Infrastructure was disaggregated into transport and information and communications technology (ICT) infrastructures. Two institutional variables, control of corruption index and regulatory quality, were incorporated in the model. By employing Poisson Pseudo Maximum Likelihood (PPML) estimator, the results confirm that both ICT and transport infrastructures and quality institutions positively impact on the volumes of total bilateral exports in East Africa. However, ICT infrastructure has a greater impact on trade flows compared to transport infrastructure. Therefore, more resources should be channelled towards increasing the stock of ICT infrastructure to propel trade and regional integration in East Africa.

Is Sino-Africa Bilateral Trade More than Resource Focused? The Rhetoric and the Reality

Abstract This study uses an augmented dynamic gravity model to identify the main contributing factors influencing bilateral trade between China and 46 African countries in general and to test whether Sino-Africa bilateral trade is more than resource focused in particular. Natural resource was captured by “oil exports” and “ores & metal exports,” and the empirical analysis verifies only “oil” not “ores & metals” to significantly influence the growing Sino-Africa bilateral trade. Thus, the empirical result partially supports the widely held view that natural resources are critical to bilateral trade between China and African countries. However, it is not true that Chinese engagement in Africa is exclusively due to natural resources as always portrayed. Apart from the oil factor, some other significant factors for the growing bilateral trade are identified. The study indicates there is a huge opportunity and potential for rapid expansion of Sino-Africa bilateral trade that is mutually beneficial.

The Role of China’s Exchange Rate on the Trade Balance of Sub‑Saharan Africa: a Gravity Model Approach

This study seeks to investigate theimpactof China’sexchange rate onthe trade balance of 41 Sub‑aharan African countries for the period from 1994 to 2016. Using an augmented gravity model, the grouped and ungrouped results of the study confirm the elasticity and absorption approaches of the trade balance. Similarly, the robustness check, by dividing the sample period into two sub‑eriods (2005–016 and 1994–004), also confirms the elasticity and absorption approaches of the trade balance.

INTRA-REGIONAL TRADE FACILITATION: A COMPARATIVE ANALYSIS BETWEEN ECCAS AND ECOWAS

Abstract. Since the advent of the Abuja Treaty, Economic Community of Central African States (ECCAS) recorded poor intra-regional trade performance while Economic Community of West African States (ECWAS) performed better. The objective of this paper is to comparatively analyse the impact of trade facilitation measures on intra-regional trade between those two Communities, focusing on the role of Information and Communication Technology and custom environment indicators. Using data from United Nations Conference on Trade and Development, Geodist of Centre d’Etudes Prospectives et d’Informations Internationales and World Bank, our augmented gravity model results showed that internet has a positive and significant impact on the intra-ECCAS trade and no impact on intra-ECOWAS trade. Mobile phone has a positive and significant impact on the intra-regional trade in both zones. The number of days for export has a negative and significant impact on intra-regional trade in both zones, while the result of the number of document is ambiguous. The impact of the increase in these two indicators reduced trade more in ECCAS than in ECOWAS. Keywords. Trade facilitation, ICT, ECCAS, ECOWAS, Augmented gravity model. JEL. C23, H54, O24, R58.

Structure and dynamics of global capital and international trade: Analysis of the relationship between exports and foreign direct investment (FDI) from 2001 to 2006

AbstractThis article attempts to explore the empirical evidence for the linkage between exports and foreign direct investment (FDI) by examining its relationship with over 140 countries from 2001 to 2006. Through using the comprehensive bilateral cross‐country panel exports and FDI data set for the first time, this article provides more insights about the relationships between exports and FDI with developed–developed country pairs as well as with developed–developing country pairs, respectively. By applying augmented gravity models, this article justifies that exports and FDI are complementary as previous studies posit. Furthermore, such complementary relationship is more positive and significant with developed–developing country pairs when compared to other combinations (developed–developed and developing–developing pairs). To be more specific, FDI from developed to developing countries promotes more exports, while FDI from developed countries to developed countries is less important in promoting exports.

The Determinations of East Asia’s Automobile Trade Using a Gravity Model

The aim of this study is to investigate empirically the factors that determine the level of automobile trade in East Asian countries by taking into account government policies as well as the role of MNEs. To do so, in this study we include dummies of import substitution industrialisation (ISI) and export orientation industrialisation (EOI) policies as well as Japanese FDI as additional explanatory variables in our augmented gravity models. We found that GDPs, distance, per capita income, FTA, government policies, language and FDI are the determinants for the development of automobile industry in each country in East Asia. In the case of auto P&C, apart from economic size, the role of government through trade policy (i.e., FTA) and industrial policies as well as the role of MNCs are the major contributors to the development both exports and imports of East Asian countries. In the case of final automobiles, the role of FTA and language seems to be unimportant. Nonetheless, the role of government policies and MNCs seem to be important.

TWENTY‐FIRST‐CENTURY TRADE GOVERNANCE: FINDINGS FROM THE COMMONWEALTH COUNTRIES

This paper focuses on twenty‐first‐century‐trade governance patterns within the Commonwealth (CW) countries. It uses an augmented gravity model to examine the role of governance in influencing trade and investment flows, and whether enhanced trade governance within the CW countries could potentially foster trade gains, on a both intra‐ and extra‐CW basis. Results show a 10% reduction in the costs incurred for a good to exit a country can increase intra‐CW exports by 5%. Second, contract enforcement is more efficient among CW members, and requires 20% less time compared to the world average. Third, every 1 percentage point improvement in government effectiveness triggers an increase in exports from CW, at 3.4%, compared to the rest of the world, at 2.4%. Finally, trade between CW members is three times higher when they belong to an existing regional trade agreement. (JEL F10, 011, F13)

Uluslararası Göçün Dış Ticaret Üzerine Etkisi: Türkiye İçin Ampirik Bir Analiz

The aim of this study is to investigate the effect of international migration on foreign trade in Turkey. The study focuses on the trade of Turkey with 125 countries during the period from 2013 to 2016. For this purpose, the models estimated by using panel data method are divided into two groups: OECD member countries and developing countries. The variables in the models are determined by the augmented gravity model. There are two main results of the study. First, the effects of international migration on exports, imports and foreign trade are positive in the models for both OECD countries and developing countries. Second, the positive impact of international migration on imports is greater than the impact on exports in Turkey. This result indicates that the preference effect is more dominant than the network effect in Turkey. There is also a need for policies to encourage more qualified immigrants to come to Turkey.

The impact of China’s one belt one road initiative on international trade in the ASEAN region

This study explores the potential effects of China’s ‘One Belt One Road’ (OBOR) policy on trade flows in ASEAN countries and China. We use the augmented gravity model of international trade and data on ASEAN countries and China from 2000 to 2016. The empirical results show that the coefficient of the OBOR dummy is positive and statistically significant, which implies that this policy benefits both ASEAN countries and China in terms of increased trade flows among these countries. In addition, the coefficients of other control variables, such as a common language, a common border, and distance, have the expected signs, and all are statistically significant. Thus, the OBOR policy initiative could be a promising mechanism for trade facilitation in these countries in the years to come.

Malaysia's Exports to China: Does Diplomatic Relationship Matter?

Institutional arrangements can play an important role in fostering trade between countries. It can help to boost export from one country to another and ease the penetration of new products to the market of the importing country. The institutional aspects, however, have been largely overlooked in trade studies for developing economies, especially for Malaysia. This study focuses on examining the importance of diplomatic relationships in fostering Malaysia–China's trade. Through consumer utility maximisation, diplomatic relationships as well as other institutional aspects such as halal‐related variables are incorporated into an augmented gravity model. The findings suggest that building and improving diplomatic ties tend to boost trade between countries.