Gravity Model Of International Trade Research Articles

Relatedness and product complexity meet gravity models of international trade

Researchers have long used gravity models to analyze international trade patterns, identify export opportunities, and negotiate trade agreements. Recent research has emphasized the significance of relatedness and product complexity research in developing robust economic development strategies. This paper presents a novel approach, incorporating relatedness and product complexity as integral elements for interpreting export potential within gravity models powered by machine learning. Our approach stands out for its proficiency in accurately predicting bilateral trade values at a detailed product group level, providing valuable insights for policymakers and other stakeholders. The research leverages random forest machine learning models for predictions and incorporates relatedness and complexity to reveal new dimensions in international trade analysis.

«Безграничные объекты» экономической теории и эволюция представлений о пространстве

The paper considers the question of the evolution of the conception of economic space within the approaches of the classical school of the location of productive forces, the gravity model of international trade, the walrasian equilibrium model, as well as institutional analysis. Physicalist metaphors are considered in parallel with this evolution. It is emphasized that economic objects lack clear-cut boundaries, which leads to the problem of ignoring the heterogeneity of space. It is demonstrated that competition within the Walrasian space reduces the degree of heterogeneity, whereas the Coasian space is inherently heterogeneous. The changes in institutional regimes, blurring of property rights and specifying their identification can both decrease and increase transaction costs. it is inferred that the concept of boundaries of objects is of great importance to economic research.

Gravity, globalization and time-varying heterogeneity

As data availability improves, the gravity model of international trade is used to study the flow of trade over increasingly long periods of time. This puts pressure on the standard assumption that constant bilateral fixed effects are sufficient to control for unobserved heterogeneity. When looking across decades rather than years, changes in the economic landscape will affect both explanatory and dependent variables, thus biasing the results. The paper begins by providing evidence of time variation in the unobserved heterogeneity using a novel econometric test. It then presents a new way of estimating the gravity model that can identify and control for unobserved heterogeneity as it varies over country pairs and time. This approach substantially enhances the precision of the estimated parameters, enabling a detailed analysis of the impact of different types of economic integration agreements on trade on an annual basis. This heightened precision also demonstrates the diminishing importance of distance and allows our model to accurately depict the evolution of trade over time. The pattern in the unobserved heterogeneity closely resembles the ascent and the deceleration of globalization. The paper closes with some preliminary analysis into the factors that underlie the unobserved heterogeneity.

Global energy transition and foreign environmental regulations: Impacts on Russian regions’ export volumes

This paper analyses the impacts of trading partners’ environmental regulation on the export volumes of the Russian regions, using panel data covering about 140,000 observations in 84 Russian regions and 204 countries for the period 2013–2020. We employ the Gravity Model of international trade and Heckman Sample Selection methodology, with the fixed effects and random effects Poisson Pseudo-Maximum Likelihood techniques to analyse two subsamples of the Russian regions with different shares of environmentally sensitive goods in regional exports. As a robustness check, we utilize the non-parametric Driscoll–Kraay approach. The results of the econometric estimation demonstrate that environmental regulations enhance the export of regions with a high share of environmentally sensitive goods in export structure, while for the rest of the regions the environmental regulations negatively affect export volumes. The promoting effect is associated with a higher level of innovativeness of the regions and the role of the global energy transition process. We conclude that the environmental agenda is a challenge for some Russian regional exporters due to the lack of own environmental regulation, and to the specific features of the commodity and geographic structure of exports. To transform the negative impact into the positive one for all Russian regions, policy measures are necessary on the federal, regional, and company levels, encompassing environmental regulations and green development strategies, along with innovation and cluster policies, and the development of human capital and infrastructure.

THE EFFECTS OF INTERNATIONAL LOGISTICS IN GLOBAL VALUE CHAIN TRADE

The current empirical literature shows that logistics plays a vital role in increasing the total volume of international trade. However, there is scarce literature on the impact of logistics performance on global value chain trade. Therefore, the objective of this paper is to investigate the effect of logistics performance on global value chain trade, measured by the value-added exports. The empirical specification of this paper is based on the structural gravity model of international trade. The analysis is based on biennial panel data on bilateral trade flows for the EU-15, CEE, and the Western Balkans and covers the period from 2010 to 2018. The model is estimated with a Poisson Pseudo Maximum Likelihood Estimator. The results show that logistics performance appears to have significant positive effects on global value chain trade and that the logistics performance of the partner country plays a more critical role than the logistics performance of the reporting country. Institutional quality matters greatly for global value chain trade. Individual differences in the observed variables were found between selected groups of countries. The need to improve logistics performance and invest in knowledge and technology will help countries improve in value chains, along with adequate institutional support.

Effect of the Timber Legality Requirement System on Lumber Trade: Focusing on EUTR and Lacey Act

This study provides novel insights into the policy effects of timber legality verification methods, specifically Due-diligence (under the European Union Timber Regulation (EUTR)) and Due-care (under the Lacey Act), on coniferous and non-coniferous lumber trade, highlighting their significance in the context of global lumber trade. Timber legality verification plays a pivotal role in the global timber trade. We comprehensively assess the impact of verification methods on coniferous and non-coniferous lumber trade, utilizing two decades of trade data (1997–2017) across approximately 160 countries. We employ the difference-in-differences method based on the gravity model of international trade, utilizing robust export–import data and demographic profiles. Our findings demonstrate that the effect of EUTR on coniferous lumber imports ranged between −0.32% and −0.05%, and that on non-coniferous lumber imports ranged between −0.44% and −0.05%, whereas the effect of the Lacey Act on coniferous lumber imports ranged between −0.93% and −0.09%. Non-coniferous lumber imports remained unaffected. The Voluntary Partnership Agreement (VPA) led to decreased exports to the EU and US. Our findings hold two key implications. First, Due-diligence exhibits more consistent policy effects than Due-care. Second, supporting VPA-participating countries is crucial for facilitating timber trade. These insights inform timber trade policies and sustainable practices.

The Internet’s Impact on Trade – An Analysis Applying the Gravity Theory

The gravity model of international trade analyzes synergistic trade flows based on the economic size and distance between two parts. The model suggests that trade tends to fall with distance due to geographical distance. This paper an analyzes the internet's impact on the geographical distance of the gravity model. Firstly, it briefly describes the gravity model focusing on the importance of geographical proximity. Secondly, it illustrates the introduction of the internet and changes that occurred by it specifically targeting intangible services developed through the introduction of the internet. Thirdly, it analyzes the internet's impact on the distance advantages with historical trade data. Lastly, this paper forecasts how the model will change due to an increasing information technology dominance economy

Pak-Afghan Bilateral Trade:

Afghanistan and Pakistan are located at the junction of Central Asia and South Asia. Owing to geographical contiguity, common border, common culture and similar consumption patterns, bilateral trade between the two countries should have increased with the passage of time, in line with the assumptions of the Gravity Model of international trade. However, it has been observed that during the period 2012-2018, bilateral trade between the two countries has either stagnated or declined. There are various causes responsible for the declining trends in trade where this study uses both quantitative and qualitative evidences as primary and secondary data. The gravity model of trade was estimated by using random effect estimation technique for panel data set (secondary data). Furthermore, the trade potential was estimated which shows that Pak-Afghan trade is operating below potential level. For qualitative evidences, the input of the actual stakeholders (primary data) including traders, transporters, clearing agents and customs officials was taken and analyzed. The finding of the study shows that Pak-Afghan trade is operating below the potential level and is not in line with GMT. Similarly the non-tariff barriers (NTBs) for Pak-Afghan bilateral trade have resulted in trade diversion to Afghanistan’s trade with India, Iran and Uzbekistan.

Empirical analysis of the impact of Turkish bilateral official development assistance on export

Purpose ― The main objective of this study is to explore the relationship between bilateral official development assistance and the export of Turkey to 18 Turkish aid recipient countries between 1998 and 2019. Methods ― The study employs the gravity model of international trade to capture the effect of official development assistance on Turkish export to its aid recipient countries and utilizes Panel data econometric analysis. Findings ― The official development assistance (ODA) remains statistically significant across the models, indicating that ODA is one of the significant drivers of Turkish bilateral trade with the aid recipient countries. Implications ― The study argues that Turkey applied ODA as a foreign policy tool to access new markets in the Middle East, Balkans, Africa, and Asia. Turkish exports to developing countries increased due to the upsurged country's foreign aid donation to its recipients. Originality ― This study deviates from other studies in the literature by empirically examining the relationship between bilateral Official development assistance and the export of Turkey.

Trade Potential of Afghanistan with European Union: A Gravity Model Approach

The notion of international trade and its impact on economic growth has been phenomenal. Thus, countries to reap the trade dividends diversify their trade destinations. Against this backdrop, this study investigates the trade potential of Afghanistan with the European Union by applying the gravity model of international trade. The study used panel data for five years, from 2015 to 2019. The gravity model has been further augmented by adding GDP per capita, population, real exchange rate, inflation rate, and openness of the partner country. The co-efficient of the gravity model has been used to estimate the trade potential of Afghanistan with the European Union. The analysis used the gravity trade model, satisfying the OLS assumptions. The data revealed that Afghanistan’s bilateral trade with the EU is positively and significantly affected by its GDP, GDP per capita, exchange rate, population, inflation rate, and employment openness. The results indicate that Afghanistan has trade potential with ten European Union countries. The study's results satiate that out of the chosen fifteen countries of the European Union, the magnitude of Afghanistan's trade potential is high with three EU countries (Germany, followed by France, and Spain). The trade potential also exists for seven other countries: Sweden, the Netherlands, Belgium, Austria, Poland, Ireland, and Italy. Afghanistan is close to its trade potential with Finland and Denmark. Whereas in the case of Romania, Latvia, and Greece, Afghanistan does not enjoy any trade potential. The findings of this study are intended to help the Afghan government and traders estimate Afghanistan's trade future and consistency in European Union markets, as well as to determine whether the Afghan government can sustain its trade with those countries.

Scientific Mapping of Gravity Model of International Trade Literature: A Bibliometric Analysis

The Gravity Model is the galloper of applied international trade literature. This model allows us to estimate trade-impacts of various trade related policies. Thousands of research studies have applied gravity models in their research works. The purpose of this paper is to look at bibliometric analysis of worldwide publication output based on a gravity model of international trade, as covered by Scopus from 1987 to 2021. The study analyses annual productivity, most productive source titles, prolific countries, eminent institutions, linguistic analysis and productivity of authors and their contribution in the subject area. According to the findings, Estimation of trade variables and projections are the most popular areas of subject specification, while in terms of literature gaps, estimation of economic integration, Extensive and Intensive Margin, and Logistics Performance Index receive less attention. 2019 was the most productive year for research on gravity models in international trade. In terms of contemporary research output, the United States, Germany, Spain, and China are the most productive countries; while as per citation analysis the United States, Germany, and the United Kingdom are the top three countries. The most prolific journals for publishing works in the subject of the gravity model of international trade are Journal of International Economics, American Economic Review, and Review of Economics and Statistics. The study attempts to portray the existing literature more comprehensively by showing research collaborations and bibliographic coupling. The findings of this study can be useful to conduct further studies in the future.

Effectiveness of the deep and comprehensive Free Trade Area: A structural gravity model approach

Based on the gravity model of international trade, this article examines the ex-post impact of the Deep and Comprehensive Free Trade Area (DCFTA) on integration between Georgia, Moldova, and Ukraine with the European Union. We evaluate the welfare outcome of trade creation and trade diversion effects, compare the results of individual countries and identify differences between them. Additionally, the article evaluates the general effectiveness of the DCFTA as an instrument for trade integration. According to the structural gravity model estimations, as a result of the DCFTA, EU-Georgia trade increased by approximately 18%. In the case of EU-Moldova trade, the DCFTA impact is statistically less significant, around 9%. While DCFTA in Ukraine has a negligible effect on trade with European Union. The agreement brings welfare gains only in the case of Georgia. Generally, the average impact of the DCFTA on trade with the EU is positive but statistically insignificant for the region. The results are very different for each country.

Effects of Development Aid on Donor’s Exports: A Case of the Czech Republic

Abstract The main goal of foreign aid should be the support of developing regions; however, due to the rising international requirements on the amount of provided aid, donors start to focus on the benefits aid can bring them as well. Both country-specific and general studies have been conducted to evaluate the return of aid from the donor’s perspective, with the majority of them suggesting that provided aid boosts donor’s exports to the developing countries. As no such analysis exists for the Czech Republic, this paper tries to fill this gap and aims to find out whether there is a positive relationship between the Czech aid and Czech exports. While employing the gravity model of international trade, the study, however, suggests that the Czech aid is not statistically significant for the volume of Czech exports. Unlike other donors, the Czech Republic thus leaves a considerable trade potential arising from the foreign aid untapped. The reasons might be other motives behind the Czech aid (both official and unofficial), poor co-operation of aid and trade policies, or changes in trade patterns.

The role of the One-Belt One-Road initiative in China?s exports and global value chains

Research background: China is regarded as the ?world factor? highly involved in international trade and plays an increasingly important role in the global value chains (GVC). Additionally, the ?One-Belt One-Road? (OBOR) initiative was proposed by the Chinese government to further promote China in the international market. Purpose of the article: The article explores the role of the OBOR in China?s exports and global value chain. It aims at: 1) verifying how OBOR impacts the volume of China's export and value-added export to its partners. 2) checking whether or not OBOR strengthens the industrial connection between China and its participants at the GVC level. 3) examining the different roles of corridors in China's exports and GVC. Methods: The empirical analysis is based on the augmented gravity model of international trade, which comprises China and its 197 partners in the period 2000?2018. The model is estimated for gross export as well GVC measured by domestic value added in export and the value contributed by a partner to China?s exports. Findings & value added: In general, there is a significant positive correlation between OBOR and the volumes of China?s export, domestic value-added trade and the value of partner?s contributed in China?s export. However, some of the results are blurred by OLS and FE methods. The author points out that FE-PPML estimation methods are more adequate. Among the six economic corridors, Bangladesh-China-India-Myanmar (BCIM), China-Pakistan (CP) and China Indochina Peninsula (CIP) were proven to play a prominent role in promoting China?s export, DVA and strengthening the links of global value chains. It is worth noting that the China-Mongolia-Russian Federation (CMRF) corridor harms China's export and DVA trade, and at the same time promotes countries in its region that benefit from trade with China.

TRADE FLOWS BETWEEN ALGERIA AND EUROPEANUNION COUNTRIES

This article aims to empirically analyze the determinants of trade flows between Algeria and the five European Union trading partners, namely, Italy, France, Germany, Spain and Portugal, over the period 1990-2018, using the basic gravity model and the augmented gravity model of international trade. The obtained results show that Algeria’s bilateral trade flows with its trading partners is positively affected by GDP growth, and negatively influenced by economic inequality and geographical distance. There is also evidence that colonial past and trade agreements have a weak impact on Algeria’s trade flows. Moreover, by suppressing trade barriers and concluding bilateral agreements, Algeria has a real trade potential to promote trade exchanges with Germany, France and Spain.

EAEU Countries Foreign Trade Policy: Results of Simulation Modeling

The authors examine the impact of foreign trade on the development of the Eurasian Economic Union (EAEU). The relevance of the study is related to the role of foreign trade in the integration processes of the EAEU countries. The purpose of the study is to identify, on the basis of a modified gravity model of international trade, the possible contribution of changes in the foreign trade policy of the EAEU countries to the growth of their foreign trade. The authors apply a pseudo-maximum likelihood estimation method, which is Poisson regression. Based on the results of the gravity model, covering the data of 97 countries with volumes of 95% of world GDP and 85% of international trade flows, the authors identified the potential contribution of possible changes in the foreign trade policy of the EAEU countries to the growth of their foreign trade turnover, including the reorientation of country directions. The authors gave a quantitative assessment of the foreign trade potential of the EAEU countries in trade with the main partners. The study presents an assessment of the impact on the volume of foreign trade of Belarus of its possible accession to the WTO, which could increase this volume by 11.4%. Particular attention is paid to modeling the trade potential of the EAEU countries with 40 leading trading partners. An analysis of the foreign trade of these countries shows no noticeable changes in the structure of its directions, and the foreign trade turnover continues to grow at an insufficient rate. The simulation results led to the conclusion that the EAEU countries have significant trade potential with the United States, the United Arab Emirates, Singapore, Sweden, Malaysia, Spain and Brazil, and the actual volume of trade with these countries is less than 50% of the potential. Realization of this potential requires, as shown in the study, significant changes in the foreign economic orientation of the EAEU countries and modification of foreign trade policy.

The International Trade of Bangladesh: An Empirical Analysis with Gravity Model

We investigate the foreign trade pattern of Bangladesh using the gravity model of international trade. This work studies 24 years of Bangladesh’s bilateral trade with its 52 major trade partners, from 1995 to 2018. We construct a large panel dataset of 3,168 observations to capture the multilateral resistance terms by accounting for two-way trade flows from each country with the others. We use the PPML fixed effects estimator suggested by Silva and Tenreyro (2006) as the most preferred method for gravity-based analysis. We find mixed results regarding the consistency of Bangladesh’s trade pattern with the gravity model predictions. The results suggest that Bangladesh’s export is positively determined by its income and partner countries’ level of development, but it is relatively less influenced by partner countries income. However, Bangladesh’s level of development is observed to be negatively correlated with both export and import. The distance between the trading countries matters less to Bangladesh, and Bangladesh comparatively tends to trade more with distant countries. The results also suggest that tariffs imposed by partner countries do not affect Bangladesh’s export negatively as Bangladesh receives GSP benefits from its major export market. All the results of the fixed effects regression models are robust, and this paper has significant implications in terms of formulating trade policy for Bangladesh.

Road infrastructure and intra-community trade in the Central African Economic and Monetary Community

We examine the contribution of domestic and interstates road infrastructures to trade flow between member countries of the Central African Economic and Monetary Community (CEMAC). Theories of international economics as well as those of the new economic geography suggest a positive contribution of both road infrastructures to intraregional trade. A gravity model of international trade is estimated to evaluate this theoretical prediction in the CEMAC zone. Results confirm a positive contribution of interstate road infrastructure to intra-Community trade, but show no evidence of a positive contribution of domestic road infrastructure to intra- CEMAC trade.

Intra OIC-Region Trade: Application of Gravity Model

Purpose: This study analyses the international trade among members of the Organisation of Islamic Cooperation (OIC) and documents the significant contributing factors. Methodology: Our sample includes 49 OIC-members (located from Southeast Asia to South America). The extended gravity model of international trade is applied to identify the determinants of intra-OIC region trade on the recent five years data (2014-18), at the time research conducted. Exports are used as proxy for the international trade between a pair of trading partners. Findings: Evidence supports the application of the basic gravity model in explaining trade variations within the OIC region. GDP contributes positively while distancing negatively. Common language contributes positively to trade flows. Shared borders and Inflation (importer and exporter) turned insignificant. Trade volume among OIC member countries is less than potential. Recommendations: OIC economies need to focus on growth through the production of value-added commodities-leading to an increase in international trade. Furthermore, surplus capital within the region may be shifted to economies with scarce capital. Significance: To the best of author’s knowledge, this is the only effort to present a comprehensive analysis of international trade within the OIC region through the application of the gravity model in recent years.

An analysis of trade cooperation: Central region in China and ASEAN.

China-ASEAN are the two huge markets in trade world, they can bring out greater dynamism from within their economies and contribute to regional economic development. This study explores the present situation on the trade between the Central region of China and ASEAN through empirical assessment and try to find the potential effects and trade flows between them. Firstly, we analysis the trade integration index, HM index, explicit comparative advantage index, and trade complementarity index. Finally, we use the gravity model of international trade and data on 2006–2018. The bilateral trade relations between the central region and ASEAN are getting closer, but the central region has not yet become the major trade area of ASEAN countries in the Chinese market. The bilateral economic development level plays a positive role in promoting the export trade between the Central region and ASEAN, while the bilateral distance plays a negative role in difficulty. The empirical results show that trade potential between the Central region and Indonesia and the Philippines is huge, and there is still opportunity for the development of the trade potential with Thailand. The trade prospective with Malaysia, Singapore and Vietnam is limited, and new approaches need to be developed to achieve further trade cooperation.