Gravity Model Of Trade Research Articles

Trade flow of manufacturing sector and foreign direct investment in ASEAN economic integration: the gravity model of trade

This study aims to determine the effects of ASEAN economic integration on the manufacturing sector's trade flow and foreign direct investment. This study using panel data regression. The results show that ASEAN economic integration affects trade in the manufacturing sector and foreign direct investment (FDI) in ASEAN member countries. The tariff elimination policy increased trade flows in the manufacturing sector and foreign direct investment. The variable of GDP has a positive and significant effect on the manufacturing sector's trade flows and foreign direct investment. Exchange rate variables have a negative and significant effect on trade flows in the manufacturing sector and foreign direct investment. Meanwhile, the distance variable negatively affects trade in the manufacturing sector, but it does not affect foreign direct investment.

The gravity model of international trade of the EAEU, SCO and BRICS countries

This article discusses the factors influencing the financial and economic cooperation of the countries with the developing marker within the framework of the three blocks – EAEU, BRICS, and SCO, by means of building the gravity model. The countries of the former Soviet Union are considered separately. The research covers the period from the Russian crisis of 2014 up to the present. The subject of this analysis is the financial and economic relations arising in the process of cooperation of the EAEU, SCO, and BRICS member-states with the developing market. The author explores the factors that impact the financial and economic cooperation of the countries with the developing market: depth and scale of foreign trade turnover, per capita GDP, market accessibility index, currency appreciation rate of the import and export country, distance between the countries, belonging of the country with the developing market to such associations as EAEU, BRICS, and SCO. The research is based on the general scientific methods of cognition such as analysis, synthesis, and comparison, presentation of tabular and graphical interpretation of statistics, time series, econometric modelling using the EViews software. The novelty of this article consists in determination of the factors influencing financial and economic cooperation of the countries with the developing market within the framework of the three blocks – EAEU, BRICS, and SCO by means of building the gravity model. The peculiarity of such model lies in the availability of the lagged exchange rates. The inclusion of the lag in the relative exchange rate of the export country rate let to exclusion of the data for 2014 from the sampling. Therefore, it is advisable to take into account the acquired results pertaining to Russia’s cooperation on the bilateral or multilateral basis within the framework of EAEU, BRICS, and SCO.

Was trade openness with China an initial driver of cross-country human coronavirus infections?

PurposeThis paper aims to consider if an initial driver of the cross-country global coronavirus pandemic was trade openness with China.Design/methodology/approachThe authors estimate simple, seemingly unrelated and zero-inflated count data specifications of a gravity model of trade between China and its trading partners, where the number of human coronavirus infections in a country is a function of the number of distinct good/services exported and imported from China.FindingsParameter estimates reveal that the number of early cross-country human coronavirus infections increased with respect to trade openness with China, as measured by the number of distinct Chinese exported and imported goods/services, and can account for approximately 24% of early infections among China's trading partners. The findings suggest that one of the costs of trade openness and globalization is that they can be a driver of cross-country human disease pandemics.Originality/valueThis inquiry constitutes a first approach at embedding the possible disease pandemic costs of free trade, trade openness and globalization within a trade gravity model.

The MENA region's need for more democracy and less bureaucracy: A gravity model controlling for aspects of governance and trade freedom in MENA

AbstractThis paper considers a domain of governance and trade freedom indicators in order to reveal some of the dimensions along which the MENA region's intra‐regional trade and export intensity might be fostered. Historically, conflicts, crises and oil interests have impeded intra‐MENA integration efforts and kept trade‐flow intensities between the region's countries below those of its trade with RoW. But it seems evident that similarities in the governance and trade freedom indicators of MENA countries would promote such trade flows. Our empirical methodology here is to use a classical trade gravity model with augmented variables to measure intra‐regional trade and export flows for MENA countries and compare them with flows for MENA_E.U. and MENA_RoW. We develop three sets of scenarios to capture the impact of governance and trade freedom indicators accordingly: First, we introduce a standardised polity index to measure its impact on accelerating intra MENA's export flows compared with MENA_EU and MENA_RoW. Second, we introduce a range‐based Polity IV index and trade freedom index to test whether similarity in the governance indicators of MENA countries leads to significant intra‐regional trade flows. We also test the interaction between both. Finally, to check the robustness of export flows, we include World Governance Indicators (WGI) and their sub‐components in the estimations. The main result is that when two MENA trade partners are both classified as mixed regimes under the Polity IV index ranges, the coefficient becomes highly significant and bilateral trade flows increase by 1.25%. Components of (WGI) specifying government effectiveness, rule of law and control of corruption increase exports for MENA's origin exporter countries. Finally, the interaction term (Polity IV and Trade freedom ranges) captures continuous improvement in the quality of governance and self‐regulated systems implemented by governing executives and authorities as they shift away from pressure and interest groups. This leads to higher degrees of mutual understanding and benefits to the region's trade flows and policies.

The impact of the Eurasian Economic Union–Iran preferential trade agreement on mutual trade at aggregate and sectoral levels

In October 2019, the preferential trade agreement between the Eurasian Economic Union (EAEU) and Iran entered into force. In the present study, we estimated its expected impact on mutual trade flows at aggregate and sectoral levels using the gravity model of trade based on the global sample of bilateral trade flows at the harmonized system six-digit level. The analysis suggested that the implementation of the agreement will boost mutual trade for both trading partners, with relatively greater gains expected for the EAEU’s exports to Iran. The total gains in mutual trade were estimated to reach over USD 72 million, with exports from the EAEU to Iran anticipated to increase by 19.1%, compared with a rise in exports from Iran to the EAEU of up to 7%. The difference in the impact is highly heterogeneous across the five EAEU countries and across sectors. The major export gains are estimated to accrue in the agri-food sectors—especially, trade in miscellaneous fruits and vegetables—and in the chemicals, textile, polymer production and selected electrical and machinery manufacturing sectors.

An assessment of India's virtual water trade in major food products

This paper analyzes virtual water trade flows through food products between India and its trading partners. It relies on the gravity model of trade and estimates a panel data fixed effect regression to identify drivers of virtual water trade. Our results show that India was the net exporter of virtual water in food products during 1990–2013; however later it turned out to be its net importer. Further our analysis shows distance between trading partners as the primary driver of virtual water trade. India prefers trading with its neighbours to reduce transportation costs. The availability of arable land and water used in crop production are limiting factors for production of food crops and thus act as essential factors in deciding the virtual water trade flows. These findings indicate that resource endowment factors influence bilateral virtual water trade flows.

An Empirical Study on the Trade Impact of Cross border E-commerce on ASEAN and China under the Framework of RECP

As an indispensable part of future global trade, the cross-border e-commerce will change the form and volume of the current global trade with globalization. Taking China and ten ASEAN countries as the research object, this paper empirically tests whether the cross-border e-commerce under the RCEP framework will affect the trade scale between China and ten ASEAN countries through the trade gravity model. As the research suggests, the impact of GDP and the Internet popularity on the trade scale of different ASEAN countries and China is not the same. Malaysia, Vietnam, Singapore, Thailand and other countries have larger trade volume with China due to economic factor, Internet, geographical location and other factors, while Brunei and Laos, which are closer to China with smaller economic volume, have more obvious shortcomings and are less related to the trade with China.

Consequences of FTA Withdrawal: Evidence from "Uxit"

We use a unique case study to estimate the effect of withdrawing from a free trade agreement on international trade. Lately, the political opposition to international economic cooperation has been on the rise, but little is known about how the withdrawal from a trade agreement affects trade. We analyze a quasi-natural experiment to provide first empirical evidence. In 2004, Estonia joined the European Union, which mandated that it withdraws from its FTA with Ukraine (“Uxit”). Based on the gravity model of international trade, we provide evidence from triple difference–in–differences as well as PPML panel estimations that trade volumes between Estonia and Ukraine fell by more than 20%. We find that withdrawing an FTA revokes all benefits and that no institutional memory is left behind. General equilibrium estimates suggest that FTA withdrawal led to a noticeable loss in welfare of members.

Gravity model and Pakistan - China Trade

Pakistan being an important ally of the war against terror paying huge price of not merely of innocent lives of people but huge monetary losses in many sectors of economy, one lucrative sector is international trade. Pakistan’s export potential has undergone strenuous pressures to perform according to the past performance. There was a need to reveal new export potential and lucrative sectors of economy with recommended policy changes so that new paradigm change in international trade can be initiated. This empirical study carried to meet the objective in which gravity model is used for investigating the bilateral trade between Pakistan and China. This model is being used extensively by the researchers worldwide to make predictions about volume of international trade to suggest the policy changes in international trade management. The findings confirm that the tariff rates significantly and negatively affects the Export Volume from Pakistan to China as t-stats > 1.5 which results the trade deficit to be increased, while the affinity (i.e. bilateral visits of people of Pakistan and China to each other countries, bilateral dialogues between China and Pakistan, Social integrations programs between China and Pakistan etc.) between China and Pakistan and Geography (i.e. the trading countries are both in Asia with the connected borders) significantly and positively affects the Export Volume from Pakistan to China as t-stats > 1.5, thus the trade deficit is reduced due to stated affinity and geography. The large value of F-stats also reports that the relationships of export volume from Pakistan to China with all outlined stated explanatory variables/ predictors (i.e. the gravity model for bilateral trade between Pakistan and China) will remain alive for longer period of time in future.

Gegravity: General Equilibrium Gravity Modeling in Python

he gegravity Python package is a collection of tools for analyzing general equilibrium, structural gravity models of international trade. It provides a framework for estimating structural gravity models, simulating counterfactual trade experiments, and conducting Monte Carlo simulations to derive measures of statistical precision for model estimates. The package is based on prominent models used in the literature and aims to make structural gravity modeling more readily accessible to researchers and policy analysts.

Trade-economic cooperation of Ukraine and China within COVID-19 Pandemic and in post-pandemic time

Modern trends of trade-economic relations of the countries within the COVID-19 pandemic have been systemized in the development of mutual relations in particular economy sectors have been identified. Direct connection between the increase of export volume to China and Ukraine GDP growth has been established in the study based on the correlation-regression analysis. Weaknesses and strengths as well as opportunities and threats of mutual relations within the pandemic have been defined. The influence of the world crisis, creating a free trade area, and other factors on foreign trade circulation between Ukraine and China have been studied with the tools of empirical gravity model of international trade. Foreign trade circulation up until 2022 with and without creating a Free Trade Area has been forecast based on the modelled data. Perspective directions of trade-economic relations have been defined; the strategy of extending the trade-economic integration of Ukraine and China within the COVID-19 pandemic and in post-pandemic time within customs tariffs liberalization, intensification of symmetric interdependence and complementarity between the countries, within creating a free trade area, diversifying trade turnovers, overcoming the pandemic, reduction of crisis consequences, and strengthening cooperation in new industries of post-pandemic time has been grounded.

The Unequal Effects of Trade and Automation across Local Labor Markets

We quantify the joint impact of the China shock and automation of labor, across US commuting zones (CZs). To this end, we employ a multi-sector gravity model of trade with Roy-Frechet worker heterogeneity across sectors, where labor input can be automated. Automation and increased import competition from China are both sector-specific; they lead to contractions in a sector's labor demand and a decline in relative income for CZs more specialized in that sector, amplified by a voluntary reduction in hours worked and an increase in frictional unemployment. The estimated model fits well with the aggregate performance of the manufacturing subsectors and with the variation across CZs in changes in average income, the hourly wage, hours worked, the employment rate and employment in manufacturing. The China shock contributes almost as much as automation to the distributional effect of the combined shock, but its impact on aggregate gains is less than half of automation's impact.

Do Roads Enhance Regional Trade? Evidence Based on China’s Provincial Data

We investigate the impact of roads and highways within the provinces on the regional trade of China using the augmented Gravity Model and theory of modeling trade. We take a panel data covering 31 provinces of China over 20 years period (1998-2017) for the estimations. We apply ARMA-OLS model, fixed and random effects, and robust findings by Hausman test. The results imply that road and highway lengths within the provinces have a significantly positive impact on the value of the province-wise exports. The positive impact is due to the fact the increased coverage of roads and highways increase accessibility to resources and mobility of goods and services within the regions. Moreover, employment in the transportation sector, per capita GDP and population of the provinces also illustrate positive and significant influence on regional exports and trade. The impact of China's WTO accession on regional exports has been positive, while the financial crisis has had a negative impact. The year dummies show that, in the years following the financial crisis, China was able to regress from the external shock as trade within the provinces increased. The increase in exports after financial crisis is mainly due to the government policies and support to every province.

A Panel Analysis of Trade Gravity between Pakistan and South Asian Countries

This paper attempts to examine Pakistan’s trade patterns with South Asian countries by using a gravity model of trade. The main objective of the study is to quantify the long‑run impacts of gravity variables. To achieve this objective, a panel data set for the period 2003 to 2017 has been used. Based on the mixed evidence of the results of panel unit root tests, Pooled Mean Group (PMG) and Panel Dynamic Ordinary Least Square (DOLS) techniques are applied. The outcome of the PMG and Panel DOLS models justifies the theoretical background of the gravity model and suggests that all the basic gravity variables haveusual signs. The RGDPs and population of both Pakistan and the partner country have a positive impact on their bilateral trade. On the other hand, the distance between the two trading countries and the exchange rate have a negative impact on bilateral trade.The uniqueness of this study is that it measures the impacts of qualitative variables along with basic gravity variables. Language similarities and common borders have a positive impact on bilateral trade. Pakistan has borders with India and Afghanistan, but their trade relations are not worth mentioning. The military conflicts between Pakistan and India, and the political suspicions between Pakistan and Afghanistan hinder their trade relations.

A Gravity Model Analysis of IFDI - Exports Nexus: A Case Study of Indian Exports

The impact of Inward Foreign Direct Investment’s influence on a country’s exports to the FDI source is a subject matter of significance. This paper applies an augmented gravity model of international trade with Foreign Direct Investment integrated into it to empirically estimate the factors that influence India’s exports to its top ten FDI source countries. The top ten investor countries account for about 87 percent of the total FDI inflows into India and 40 percent of Indian exports in 2018. This paper attempts to examine whether the Inward Foreign Direct Investment flows from these nations influence the exports to these nations from India. To this end, IFDI stocks that the top ten investing countries hold in India and the exchange rate between Indian Rupee and their currencies are embedded into the augmented gravity model for international trade. Findings indicate that IFDI stocks have a highly significant and positive role to play in India’s exports to the ten FDI source countries. Besides, the economic size of the investor nation, geographical distance, and geographical distance are significant determinants of the export volume as expected. However, the limited period of data used in the panel data regression may have affected the results. The findings may change if this element is altered. Further study, with a longer period, should be conducted to test the IFDI - Exports Nexus confirmed in this paper. In general, the government of India should continue improving the investment policies as well as undertake further export-oriented reforms in the economy to push India’s exports.

Quantitative dynamics of intra-BRICS trade

The study uses an augmented gravity model to analyse intra-BRICS trade flows and the potential for establishing economic cooperation. It examines trade relations between BRICS with the help of the gravity model of international trade. Panel data from 2000 to 2017 were reviewed for bloc analysis of 20 trade partners. The analysis of the intra-BRICS trade flows is based on the Heckscher-Ohlin model. The results obtained confirm that the intra-BRICS trade relations have a sound positive impact on economic performance in these countries. Market size and economic index have a beneficial effect on the intra-BRICS trade flows. Market size is very elastic to trade, while trade tariffs and taxes within BRICS are manageable. Hence, the intra-BRICS trade has the potential to create strong economic ties within the member countries, and cooperation between the BRICS countries can have a significant influence on the globalisation of the world economy.

New nonlinear estimators of the gravity equation

The gravity model of international trade is often applied by economists to explain bilateral trade between countries. Nevertheless, some estimation practices have been subject to criticism, namely how zero trade values and the heteroskedasticity are handled. This paper proposes new nonlinear estimation techniques to address these issues. In particular, we propose standard and generalized versions of the nonlinear Heckman two-step approach that do not require the log-linearization of the gravity equation and corrects for non-random selection bias, and a generalized nonlinear least squares estimator that can be viewed as an iterative version of the normal family Quasi-Generalized Pseudo-Maximum-Likelihood estimator. Monte Carlo simulations show that our proposed estimators outperform existent linear and nonlinear estimators and are very efficient in correcting the selection bias and reducing the standard deviation of the estimates. Empirical results show that previous studies have overestimated the contribution of variables such as importer’s income, distance, remoteness, trade agreements, and openness.

Event count estimation

This paper proposes a new estimation procedure called Event Count Estimator (ECE). The estimator is straightforward to implement and is robust against outliers, censoring and ‘excess zeros’ in the data. The paper establishes asymptotic properties of the new estimator and the theoretical results are supported by several Monte Carlo experiments. Monte Carlo experiments also show that the estimator has reasonable properties in moderate to large samples. As such, the cost of trading efficiency for robustness here is negligible from an applied viewpoint. The practical usefulness of the new estimator is demonstrated via an empirical application of the Gravity Model of trade.

Análisis sobre la suscripción de la unión aduanera de la Comunidad Andina: creación y desviación comercial (1967-2017)

El presente documento busca determinar si la suscripción de la unión aduanera de la CAN en el año 1995 dio lugar a un proceso de creación/desviación del comercio intrarregional y extrarregional para sus miembros. Por tal motivo, se estima el modelo estructural de gravedad de comercio, con datos de panel de 83 países, que comprende el periodo que va de 1967 a 2017, con una desagregación de doce tipos de cadenas productivas de bienes, mediante el método de estimación “Poisson Pseudo Maximum Likelihood”. Las estimaciones sugieren que la suscripción de la unión aduanera de la CAN da lugar a un proceso de creación de comercio intrarregional y creación de importaciones procedentes de países no miembros. Entre otros resultados, se identifica que la suscripción de esta unión aduanera incrementa el comercio intrarregional en las siguientes cadenas productivas de bienes: papel y madera, acero y hierro metales no ferrosos y electrónicos. También, se encuentra que en los grupos de cadenas productivas de energía, químicos, vehículos y eléctricos se genera un proceso de creación de exportaciones hacia países no miembros.

A gravity model and network analysis of household food sharing in Zambia

Food sharing is an important part of smallholder food systems and can help households to buffer food security shocks. Household food sharing is the smallest scale food exchange system, yet we do not understand how it compares with food exchange networks at other spatial scales. To this end, we collect information on bilateral household food sharing in two villages in Zambia with approximately 50 households each. We observed seasonal fluctuations for the density of the food sharing. To our knowledge, we are the first to show that the gravity model of trade is applicable to household food sharing. Additionally, sharing networks exhibit the same statistical properties as food exchanges in other locations and at different spatial scales. Specifically, maize exchanges (in mass) follow the Gamma distribution and the relationship between household mass flux and connectivity follows a power law distribution. This work sheds light on household food sharing in rainfed agricultural systems and suggests common underlying mechanisms of food exchange systems across spatial scales and geographies.