Determinants Of Bilateral Trade Flows Research Articles

Impacts of Regional Integration and Market Liberalization on Bilateral Trade Balances of Selected East African Countries: Potential Implications of the African Continental Free Trade Area

This study examined the effect of free trade on intra-African bilateral trade balances for Kenya, Rwanda, Uganda, and Tanzania to assess the potential implications of the African Continental Free Trade area. The four countries have experienced persistent trade deficits. Whether free trade within Africa can improve the national trade balances, and the drivers of bilateral trade balances are important questions for policy and strategic programmes for the countries to make the most gains from free trade area. The econometric model estimated for each country is an extension of the standard Keynesian model of trade balance to include determinants of bilateral trade flows from the gravity model. Quantitative analysis using panel regression was augmented with qualitative data from interviews with trade policy experts and trade officials from various African countries and focus group discussions with small-scale cross-border traders at the Busia and Namanga border posts in East Africa. Findings show that complete tariff elimination on intra–African trade may not impact the bilateral trade balances of Kenya, Rwanda, and Tanzania but could improve bilateral trade balances for Uganda by 6 percent. Within the free trade areas, Uganda’s bilateral trade balances were higher within the Common Market for Eastern and Southern Africa but lower within the East African Community, than outside these areas. Kenya’s trade balances were lower in the Common Market for Eastern and Southern Africa, than otherwise. On the contrary, no significant difference in trade balances is established for the membership of Kenya, Rwanda, and Tanzania in the East African Community; Rwanda in the Common Market for Eastern and Southern Africa; and Tanzania in the Southern African Development Community, when compared to trade balances with non-members. The importance of macroeconomic factors is demonstrated by the increase in bilateral trade balances with higher relative price levels of trade partners; the reduction with increase in relative production and expenditure capacities of trade partners; and improvements following a depreciation of home currency for Tanzania and Uganda, yet a worsening of trade balances in Kenya. A lack of harmony in documents required for cross-border movements within the free trade areas is reported as counterproductive. All African countries should therefore fully implement protocols and cooperate in the harmonization of trade procedures for the free movement of people and goods across borders. Country policies and trade programmes should pursue increased productivity in the leading intra-African export sectors and diversify exports via foreign direct investment in strategic sectors to substitute imports from outside Africa; reduce costs of production; increase the quality of products; and improve transport infrastructure.

Determinants of bilateral trade flows of Vietnam: evidence from panel fixed effects estimation approaches

This study aims to investigate the determinants of bilateral trade flows of Vietnam. The panel fixed effects estimation using Driscoll and Kraay standard errors and panel fixed effects two-stage least squares approach are employed to analyze a balanced panel data, which includes fifty-three countries that have been continuously trading with Vietnam from 1997 to 2019. The estimated results reveal that free trade agreements have a positive effect on the bilateral trade flows whether in case of trading with the developed or developing countries. Additionally, the bilateral trade flows between Vietnam and the developed countries are enhanced by the difference in income level. They are, however, impeded by the institutional distance and transportation cost. In case of trading with the developing countries, transportation cost and exchange rate have a positive impact on the bilateral trade flows. Our study provides some crucial policy implications for policymakers involving international trading activities in the developing countries such as Vietnam.

Determinants of Bilateral Trade Flows Between Vietnam and Trading Partner Countries – Gravity Model Approach

This study uses the gravity model to investigate the bilateral trade flows between Vietnam and 52 countries from 2001 through 2011. The data are collected from International Trade Centre (ITC), International Monetary Fund (IMF), and the World Bank (WB). The results show that economic size, geographical distance, economic distance, technological innovation, trade openness, free trade agreement, population, exchange rate, and common border affect the bilateral trade flows between Vietnam and these 52 countries. More importantly, this study uses the speed-of-convergence method to find new potential trading partners for Vietnam, such as those in Africa and Southwest Asia.

The Determinants of Bilateral Trade within the CEMAC Bloc: Evidence Using the Augmented Gravity Model and the PPML Estimation Technique

Due to the relatively low levels of bilateral trade flows observed within the CEMAC bloc as well as the poor rates of economic growth observed in CEMAC member States, the study aimed to examine the determinants of bilateral trade flows within the CEMAC bloc using the Augmented Gravity model as the main theoretical framework. While secondary data for bilateral trade was obtained from IMF’s Direction of Trade Statistics, secondary data for Gross Domestic Product (GDP), population size and investment in fixed capital were obtained from the World Bank’s World Development Indicators and data for distance and CEMAC dummy were obtained from the Institute for Research on the International Economy (CEPII). Using the Pseudo-Poisson Maximum Likelihood (PPML) technique, the results of the study conclude that while GDP of exporting country, GDP of importing country, the existence of a border between exporting country and importing country, population of exporting country, population of importing country, physical capital of exporting country and physical capital of importing country all have positive and significant impact on bilateral trade flows within the CEMAC bloc, distance between exporting country and importing country and the creation of CEMAC as a trade bloc all have negative and significant impact on bilateral trade flows within the CEMAC bloc. Finally, the study recommends that policy makers of the CEMAC trade bloc design and implement policies and measures that are geared towards boosting the GDP of member States, investing in national and regional infrastructural projects, eradicating barriers at their respective borders, investing in the acquisition and transfer of technical and technological skills, harmonizing regional financial, economic, legal and trade policies and improving the business (investment) climate. Keywords: Bilateral Trade, Economic Growth, Augmented Gravity Model, CEMAC, PPML. DOI: 10.7176/JESD/11-16-09 Publication date: August 31 st 2020

Determinants of Trade Between Taiwan and ASEAN Countries: A PPML Estimator Approach

Taiwan and Association of Southeast Asian Nations (ASEAN) do not have any diplomatic ties, but they have enjoyed significantly economic benefits, especially bilateral investment and trade cooperation. Over the period 2000–2017, trade between Taiwan and ASEAN had significantly focused on manufactured goods embodied with high-skill and technology-intensive content. Using gravity model with a PPML (Poisson pseudo-maximum-likelihood) estimator, this article explores determinants of bilateral trade flows between them at both aggregate and sectoral levels. We found that economic scale and per capital income of ASEAN have much stronger effects than those of Taiwan at both aggregate trade and the degree of manufacturing. Results also show that bilateral trade between Taiwan and ASEAN has been efficiently performed over recent decades, except for cases of Myanmar and Cambodia. Hence, a dynamic approach should be taken by both sides to promote bilateral trade relations in future.

Determinants of Bilateral Trade Flows of Nigeria: An Application of the Augmented Gravity Model

Macroeconomic policies that aim to achieve clear and beneficial trade relationships are of utmost importance to a developing country due to complex global economic integration. This is particularly the case for Nigeria’s bilateral trade relationships and is a determinant of the size and direction of capital movements and the volume of trade flows. Thus, to analyse Nigeria’s bilateral trade flows and provide a connection between Nigeria’s economic size and distance with trading partners amongst other variables, this paper adopts the augmented gravity model. Considering both trade and non-trade variables, the gravity model has been widely applied to research on international trade. We adopt a panel data of 16 trading partners of Nigeria for the period 2000 to 2016 to estimate an augmented version of the gravity model with the aid of the panel fixed effects estimation technique. Amongst several determinants, the empirical results reveal that domestic and partner’s GDPs and distance are consistent with the predictions of the gravity model.

What Determines Bilateral Trade Flows? Evidence from ECO Region

This study provides an analysis of Pakistan’s bilateral trade in Economic Corporation Organization (ECO) region. The main purpose of this study is to assess the determinants of bilateral trade flows using the gravity trade model. Panel least square regression has been applied over the period of 1995 to 2015. Two types of gravity models have been estimated: traditional gravity trade model and modified gravity trade model. The study has identified income, population, distance, adjacency, area, landlockedness, continent and terrorism as the main drivers of Pakistan’s bilateral trade flows with ECO countries. It is suggested that policies in Pakistan should focus on improving economic growth; offer incentives to Pakistani people to engage more in trade flows; improve transportation to trade with ECO countries; and take measures to eradicate terrorism.

Institutional Determinants of Bilateral Trade Flows: A Panel Data Analysis

This study analyzes the institutional determinants of bilateral trade flows and homogeneity effect for Pakistan with ECO countries by using panel data for years 2003-2014. Gravity trade model is estimated through panel least squares technique. Impact of institutions is very important for international trade as international businesses involve many governance systems. The results show that average impact of institutional quality and bilateral trade flows is positive. Moreover, institutional homogeneity effect exhibits that bilateral trade flows are positively related with the governance similarity. Thus, institutional quality and institutional homogeneity has dominant impact on the bilateral trade flows.

Evaluating the effect of intra-industry trade on the bilateral trade productivity for petroleum products of Iran

The rapid growth of energy consumption and the unequal distribution of energy resources have increased the concern for sustainable development in the face of deteriorating energy security. However, institutional arrangements associated with the energy market and market integration can improve the distribution of energy products and boost bilateral trade productivity in energy products. Furthermore, intra-industry trade (IIT) can increase the level of market integration among trading partners through expanding vertical relationships among them. Thus, the aim of this study is to evaluate the effect of IIT on bilateral trade productivity. Hence, this study tries to identify the determinants of bilateral trade flows of crude oil and petroleum products among Iran and its major partners using the Poisson pseudo-maximum-likelihood (PPML) method during 1997–2016. Then, the bilateral trade productivity of the selected products will be calculated using the Malmquist index. Finally, the effect of IIT on the bilateral trade productivity among Iran and its partners will be evaluated using panel data method. Based on the results, the gross domestic product (GDP) per capita, the difference of oil reserves, the access to sea, and the IIT have positive effects on the bilateral trade flows, while the effects of transportation costs and economic sanctions are negative. Also, the impact of IIT on the bilateral trade productivity is positive.

Cultural and Institutional Determinants of Bilateral Trade Flows

This paper studies the intangible costs of international trade by extending the basic gravity equation with measures of cultural and institutional distance, and institutional quality. Analyzing a sample of bilateral trade flows between 92 countries in 1999, we find that institutional distance has a negative effect on bilateral trade, presumably because the transaction costs of trade between partners from dissimilar institutional settings are high. In contrast, we find that cultural distance has a positive effect on bilateral trade. A potential explanation for this finding is that firms prefer trade to host-country production in culturally distant countries. Finally, we find that the institutional quality of both the importer and exporter increases the amount of bilateral trade.

A Study of Bilateral Trade Flows of China and India

Background/Objectives: According to the World Trade Organization data for 2013, China became world’s largest trading nation and India became the 15th largest trading nation. Emerging economies gained a lot of momentum in world trade. This study analyses the trade flows of two of the emerging economies namely China and India with an objective to draw a comparison between the determinants of bilateral trade flows of the two nations using data for a period of 9 years (2004- 2013). Methods/Statistical Analysis: To achieve the objective, gravity model has been applied on a panel dataset for the two countries. The data has been collected from International Monetary Fund (IMF), CEPII’s Geodist database and United Nations Conference on Trade and Development (UNCTAD). The study employs random effects panel regression model to establish the relationship between trade flows and different variables including distance, gross domestic product, per capital income, contiguity, common language and common colonizer. It compares the determinants of trade for India with China. Findings: The findings of the empirical analysis are in accordance with past literature indicating that India and China trade flows are mostly with geographically closer countries. Additionally, India’s trade flows are with countries having higher GDP but with lower per capita income. China’s trade is influenced by higher per capita income of the trading partner and common language. When crisis is introduced in the analysis, post crisis, common colony became an important influencer of trade for India. Applications/Improvements: This study helps in identifying the key determinants of India and China’s trade flows. It also provides a pre and post crisis analysis of the trade partnerships which might have future implications for trade policy and trade relations for the two countries.

Aplikacija modela gravitacije na države G7

We apply the gravity model of trade to the G7 countries with the aim of improving our understanding of the determinants of bilateral trade flows between the G7 countries and their trading partners (a sample of 161 countries). The theoretical section of the paper discusses the theoretical underpinnings of the model. The gravity model is grounded in several theories of international trade. In the empirical section, the OLS method is used to test ten econometric models. We expand on the basic gravity model, in which bilateral trade flows are a function of the GDPs of the two trading partners and of the flight distance between their capitals, by including five dummy variables, the remoteness variable, and a variable measuring the absolute difference in GDP per capita. The latter variable is used for testing the Linder hypothesis against the H-O model. The results are consistent with existing empirical studies and theoretical predictions.

US Security Strategy and the Gains from Bilateral Trade

AbstractWe explore the geo‐strategic determinants of bilateral trade flows between the USA and the rest of the world. We develop a three‐party model of security and trade patterns and use data on military assistance and troop deployments over the 1950–2009 period to validate its predictions. We find that security assistance has significant, positive impacts on the shares of bilateral trade between the USA and the recipient country, results that are robust to issues of reverse causality and hold across different sectors.

Trading Partners and Trading Volumes: Implementing the Helpman–Melitz–Rubinstein Model Empirically

AbstractHelpman, Melitz and Rubinstein [Quarterly Journal of Economics (2008) Vol. 123, pp. 441–487] (HMR) present a rich theoretical model to study the determinants of bilateral trade flows across countries. The model is then empirically implemented through a two‐stage estimation procedure. We argue that this estimation procedure is only valid under the strong distributional assumptions maintained in the article. Statistical tests using the HMR sample, however, clearly reject such assumptions. Moreover, we perform numerical experiments which show that the HMR two‐stage estimator is very sensitive to departures from the assumption of homoskedasticity. These findings cast doubts on any inference drawn from the empirical implementation of the HMR model.

The gravity model analysis: an application on MERCOSUR trade flows

This paper explores the determinants of bilateral trade flows between Mercosur countries. To this aim, a gravity model is applied to annual bilateral exports between 75 countries in 1980–2008. The model is augmented with variables that are relevant in determining the volume and direction of international trade using two alternative estimation methods; pooled ordinary least squares and panel fixed effects. The results reveal that the influence of the agreement on trade has been positive but moderate. As a whole, Mercosur has had positive effects, and this agreement can be reinforced with the deepening of their relationships and the entry of new members.

Green productivity and bilateral trade flows in an augmented gravity model – A panel data analysis

Motivated by the debate in the trade liberalization and the environment literature, this article examines the effect of enhancing green productivity (GP) on bilateral trade flows. The uptake of per capita ISO14001 certification counts is used to measure GP. The existing literature provides other key determinants of bilateral trade flows. This article employs an augmented gravity model and presents panel data analysis on 26 countries from 1995–2004. Since GP is closely related to quality management, this article also examines the joint effect of the measure of quality management systems (QMS) and the measure of GP. Several fixed effects regression equations are estimated. The results support the hypothesis that enhancing green productivity is a positive and statistically significant determinant of real bilateral exports. The joint significance of the measures of GP and QMS is also supported. This article lends empirical support for the new trade theory and Linder's hypothesis and is consistent with those obtained in the existing literature.

Real Exchange Rates And U.S. Bilateral Trade

<span>The persistence of the U.S. trade deficit despite the significant depreciation of the dollar in the second half of the 1980s prompted several studies seeking an explanation for this phenomenon. There has been a renewed interest on the exchange rate trade linkage as the U.S. trade deficit reached a record high despite steady depreciation of the dollar in early 1995. This paper presents an empirical analysis of the relationship between real exchange rate and U.S. exports to Canada and Japan. The major finding of this paper is that real income and real exchange rates changes are important determinants of bilateral trade flows.</span>

An augmented gravity model of South Africa’s exports of motor vehicles, parts and accessories

The study applies an “augmented” gravity model to South Africa’s exports of motor vehicles, parts and accessories to 71 countries over the period 1994 to 2004. A static panel data model is specified and estimated. Several conclusions are drawn from the study. First, a number of variables, namely, importer income, distance, level of import tariffs, government effectiveness, regulatory quality, use of right-hand drive vehicles are important determinants of bilateral trade flows for motor vehicles, parts and accessories. Second, solving the gravity model deterministically, we show that export potential exists in a number of countries like Malawi, Zambia, Kenya and Malaysia. A number of barriers hinder the members of the National Association of Automobile Manufacturers of South Africa (NAAMSA) from exploiting these export markets. These include very high import tariffs, lack of South Africa’s diplomatic mission in the trading partner and the uncertainty regarding what happens at the expiry of the Motor Industry Development Programme (MIDP) in 2012. Finally, the export potential identified by the gravity model should be regarded only as an indication since it is sensitive to the model specification and sample of countries.

Determinants of Bilateral Trade Flows in OECD Countries: Evidence from Gravity Panel Data Models

This paper aims to identify the main causes of bilateral trade flows in OECD countries. The specific features of the study include the explicit introduction of R&D and FDI as the two important explanatory variables, conduct of unit root tests in the panel data framework and careful consideration of endogeneity. The main findings are that the levels and similarities of market size, domestic R&D stock and inward FDI stock are positively related to bilateral trade, while the distance, measured by both geographical distance and relative factor endowment, between trade partner countries has a negative impact. These findings lend support to new trade, FDI and new growth theories.

Bilateral trade volumes, the gravity equation and factor proportions

The gravity equation has been widely used in studying the determinants of bilateral trade flows. Despite their dubious theoretical foundations gravity models have been extremely successful empirically. All theoretical attempts to provide a formal justification for the gravity equation assume complete specialization in production. This leads to a misleading impression that complete specialization is a necessary condition for deriving the gravity equation. In this paper we demonstrate formally that the gravity equation can be derived also from a variety of incomplete specialization models based on both neoclassical and monopolistic competition assumptions. The common prediction that emerges from these models is that factor proportion variables, along with the country size variables, play a key role in determination of bilateral trade volumes, however, their impact is model specific. The neglect of these variables in empirical studies employing gravity equations derived from complete specialization models might result in estimates that suffer from the omitted variable bias if trading partners differ in terms of their relative factor endowments.