Gravity Model Of Trade Research Articles

Russia’s WTO membership: Assessing the impact on foreign trade

The paper assesses some of the consequences of Russia’s accession to the World Trade Organization (WTO). Whereas much discussion about its costs and benefits happened during the WTO negotiations and in the first years after the accession, there was little said on the real consequences afterwards. The aim of the research is to assess the degree of fulfillment of the accession expectations after a decade. The research method is the analysis of panel data on the world trade for 2000-2019 (an econometric model based on the gravity model of foreign trade). It has been established that the WTO accession ultimately benefited for Russian foreign trade. However, this effect has been offset by increased political tensions since 2014. The objections to the WTO also turned out to be predominantly justified. The most positive economic consequences of the WTO exist for exporters of low value added goods. The criticism of the WTO participation by machine builders is understandable: although they are among the beneficiaries, the effects on exports and imports are comparable.

An Empirical Analysis of India-ASEAN Trade Dynamics

The export and import intensity index and bilateral revealed comparative advantage (BRCA) index were used to analyze India-ASEAN trade from 1997 to 2020. The study further explored variables in facilitating India-ASEAN trade by applying the gravity trade model of exports and imports. Results showed that Indian-ASEAN bilateral trade was more intense in exports than imports. India enjoyed a competitive advantage in agriculture and related products in 1997 and manufactured products in 2020. The exports of India to ASEAN exhibited minor structural changes from 1997 to 2020. In gravity model analysis, exports and import flows were mainly explained by trading partners' GDP and trade openness. Exports increased while imports decreased with per capita GDP. Trade cost negatively impacted export and import flows in the model.

Digital intensity, trade costs and exports' quality upgrading

AbstractThis paper studies the relationships between digitalisation, trade costs, quality upgrading and trade flows, using an extended version of a gravity model. Based on information from various sources of data, we estimate these relationships sequentially for a sample of 18 manufacturing and 14 service sectors in 40 countries over the period 2000–2014. Using input–output tables from World Input–Output Database, we define an original measure of digitalisation at the country‐sector level that reflects the use of digital inputs into a country's production function. Using trade databases from the CEPII and OECD, we estimate a series of gravity models of trade augmented with this measure of digitalisation. Our results show that sectoral digital intensity positively affects sectoral exports. We provide evidence that this result is not ruled out by other possible factors, such as internet adoption or participation in a global value chain. A heterogeneous analysis also reveals that the effect of digital intensity is stronger for manufacturing trade and for trade between emerging economies. We explore two possible mechanisms explaining this positive relationship. First, we find that digital intensity facilitates trade between countries by reducing communication and transport costs. Second, we show that digital intensity improves the quality of exported products.

Research on the Influencing Factors about China’s Export of Mechanical and Electrical Products to the Five Lancang-Mekong Countries

This paper selects the data that China exports mechanical and electrical products (MEP) to the five Lancang-Mekong countries from 2010 to 2020. It uses the extended trade gravity model to analyze the influencing factors about MEP exported from China to the five Lancang-Mekong countries. The empirical analysis results show that GDP, the degree of openness to foreign trade, geographical distance, legal management, and whether they have a common border significantly affect China's export trade of MEP to the five Lancang-Mekong countries.

CULTURAL DISTANCE IN INTERNATIONAL TRADE: CONTRIBUTOR OR IMPEDIMENT?

The article aims at identifying and evaluating culture’s effects to predict bilateral trade flows by constructing cultural distance measures with data derived from the large-scale empirical cross-cultural study. The application of values-tied and practices-tied data across 57 countries at different points in time in international trade gravity models reveals positive predictors, but only the former is statistically significant. The country-level results display variance in cultural distance effects in trade and also show that cultural differences might contribute more to bilateral trade for less developed countries but impede it for more developed countries. By challenging the “polarity” interpretation of cultural distance, the article contributes to the scholarly discussion surrounding culture’s role in international trade by offering a more balanced view of cultural distance effects that may serve as both an inhibitor and facilitator, and by suggesting a “duality” explanation, one that has been largely overlooked.

Trade Benefits of Transport Network Expansion Policy in Türkiye

Over the past two decades, Türkiye has undertaken considerable investment in transport infrastructure to build a well-developed transport network and to get integrated into global supply chains. This study aims to evaluate long-term trade expansion benefits of transport network investment in Türkiye to derive recommendations for transport and industrial policy. For this purpose, gravity models of trade are estimated for exports and imports with infrastructure investments in various transport modes as the main explanatory variables; as well as other independent variables involving determinants of bilateral trade flow, Information and Communication Technology (ICT) development. In addition, control variables for Türkiye and for partner countries are involved in the models to obtain robust results. A main inference from the analysis entails that transport infrastructure investment acts as a driver for import growth rather than export expansion. As another important conclusion, transport infrastructure investment should be carried out with all transport types considered, based on a long-term transport policy scheme with special attention on road and rail infrastructure. Moreover, transport modes should be integrated to enhance network and connectivity of the overall logistics system. As a final remark, a widespread practice of multimodal and intermodal transportation can be achieved by a holistic integration policy of transport modes.

Understanding grain virtual water flux dynamics and drivers from a socio-ecohydrological perspective: A case study of landlocked developing countries of Africa

The virtual water (VW) approach offers a crucial heuristic tool to analyze water and food security by considering the water embedded in grain during the whole production process. African landlocked developing countries (LLDCs) continually suffer from an escalating food crisis and water resources and socioeconomic policy and water conservation strategy derived from the water-food nexus of virtual water trade (VWT) systems and resources may be the solution. Using a trade gravity model and multilateral data, this study evaluated grain VW flux patterns and 11 main drivers of VWT between 16 African LLDCs and their partners. Besides, the feedback path of VW flows corresponding to the socio-ecohydrological variability was studied using the impulse response function. The findings revealed that net virtual water import (VWI) varied across all 16 African LLDCs, ranging from 1.67 Bm3 to 10.28 Bm3 during 2000 and 2020, with an estimated yearly grain VWI of 105.61 Bm3. Green, blue, and grey water accounted for about 79.3%, 14.7%, and 5.98% of the total grain VWI, respectively. Ethiopia had the highest grain VWI among the African LLDCs. Grain VWI fluxes were significantly and positively driven by population growth and per capita GDP, which were expected to continue in the future. It was concluded that the quantitative analysis of grain VWT patterns and driving forces using the VW theory for LLDCs can be instrumental for guiding the socioeconomic policy and water conservation strategy. To effectively achieve sustainable water security and grain production, earmarked future VW strategy is required. Decision-makers should incorporate rational VW strategies and socio-ecohydrological factors into the monitoring system from a multidisciplinary perspective.

ECONOMIC DIPLOMACY AND ITS RELEVANCE IN COUNTRIES WITH DIFFERENT INCOME LEVELS: A PERSPECTIVE FOR TRANSITION ECONOMIES

The study of the effectiveness of economic diplomacy has become a popular topic in the field of international economic relations. Recent trends are confirmed by a large number of academic studies focusing on the evaluation of the performance of diplomatic and consular offices abroad. This paper represents a new attempt to empirically examine the effectiveness of economic diplomacy using the example of a transition country, based on the activities of Ukrainian foreign representations. Over the last decade, this Eastern European state has experienced significant economic turbulence, political instability and a shift in the vector of foreign economic policy, which is the main impetus for the re-evaluation of its economic diplomacy. Using recent data on export flows, the authors apply a gravity model of trade to assess the impact of economic diplomacy on export activity. The results suggest that embassies are a more relevant means of promoting export flows to low- and middle-income countries.

A gravity model approach to understand the spread of pandemics: Evidence from the COVID-19 outbreak

Abstract Pandemics disrupt the global economy. Understanding the transmission pattern of pandemics informs policies to prevent or reduce the catastrophic consequences associated with pandemics. In this study, we applied the gravity model of trade to investigate the transmission pattern of the coronavirus disease 2019 (COVID-19) across countries. The results suggest an outbreak in a country is likely to spread faster (slower) from a shrinking (booming) economy to a booming (shrinking) economy.

China’s Potential for Trade in Renewable Energy Products in RCEP Countries: A Gravity Model Analysis

China’s renewable energy products have an important place in international trade, and the conclusion of the RCEP agreement can create favourable external conditions for China’s renewable energy product exports. This paper measures the export potential of China’s renewable energy products to other RCEP countries through a trade gravity model. The results show that (1) the GDP of the importing and exporting countries, the energy consumption of the importing countries, and the particulate emissions damage significantly enhance China’s renewable energy product exports; (2) among the RCEP countries, China has a greater potential to export renewable energy products to five countries in 2020, which are mainly located in East and Southeast Asia; and (3) from a dynamic perspective, China’s renewable energy trade potential is increasing, while in the Oceania region it is weakening, while trade links to Southeast Asian countries are developing in a more mature direction. Based on the above research, this paper puts forward corresponding policy recommendations.

A study on the belt and road initiative's trade and its influencing factors: Evidence of China-South Asia's panel data.

The Belt and Road Initiative (BRI) is a development plan proposed by China that aims to build a new platform for international cooperation and create new drivers of shared development. South Asia is a key area in the Belt and Road Initiative, including eight countries. As the BRI implemented, China's trade with South Asia has been gradually strengthened. This paper explores the influencing factors of China-South Asia trade under the background of the BRI by using Gravity Model of Trade. The results show that economic growth in China and South Asia, increase of savings rate and improvement of industrialization in South Asia has a significant positive effect on China-South Asia trade. While the development gap between China and South Asia has negative effect on China-South Asia trade.

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.

Development of Trade and Financial-Economical Relationships between China and Russia: A Study Based on the Trade Gravity Model

This article empirically assessed new opportunities and provides a conceptual justification for promising areas of trade and financial and economic relations between China and Russia amidst ongoing global turbulence, the post-COVID situation, and sanctions pressure. The study utilized the trade gravity model, taking into account the latest trends in the development of the research subject and object, as well as current challenges and trends in the global economy. The study revealed similarities between the political systems, reforms, and policies of China and Russia, with centralized power structures overlapping and supporting each other at international forums such as the UNSC. The findings suggest that both countries plan to increase trade volume in the next two years, with China focusing more on trade and economic development, while Russia works to promote security and political stability. This study provides valuable insights into the economic relationship between Russia and China, its impact on the US and Europe, and highlights the need for effective policy interventions to address the challenges posed by this relationship. It offers significant theoretical and practical contributions, including the potential to unlock the potential of national economies, increase their competitiveness and help states enter a phase of advanced and sustainable development. This article provides several policy recommendations to ensure the long-term sustainability of the economic relationship between Russia and China and foster mutual understanding and trust between their peoples. These include promoting trade diversification, enhancing financial cooperation, addressing trade barriers, strengthening political and security coordination, mitigating negative impacts on other countries, promoting sustainable development, and fostering people-to-people exchanges.

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.

Study on the Spatial Evolution of China’s Pulp and Paper Product Import Trade and Its Influencing Factors

The purpose of this research is to study the changes in the market structure of China’s pulp and paper product imports. In particular, the import trade environment and market layout of Chinese pulp and paper products have changed under the international context of the coronavirus pandemic and the Sino-US trade dispute and the domestic policy context of zero imports of Chinese waste paper. This study attempts to fill the gap regarding the influencing factors of market structure, while contributing new ideas on China’s trade in pulp and paper products. Based on pulp and paper product import and export trade data from 2005 to 2021, a trade gravity model was used to explore the changes in the share of China’s trade partners for pulp and paper product imports and their influencing factors. The results indicated that the outbreak of COVID-19 led to a significant increase in China’s imports of packaging paper products, bringing about an increase in Indonesia’s status as a partner in China’s pulp and paper product trade. The US-China trade dispute had an impact on pulp and paper product trade between the two countries, with China’s tax countermeasures causing the US to lose its status as a trading partner in China for pulp and paper product imports. The center of gravity for paper product imports has moved from the US and Japan to Indonesia and Russia. The restrictions on waste paper imports have shifted the focus of China’s paper raw material imports, with the US no longer being the main importer of China’s paper raw materials. Specifically, the main importers of wood pulp are Brazil and Chile, while the main importers of waste paper pulp are Thailand and Malaysia. In the future, China needs to continuously strengthen dialogue with the United States to resolve trade disputes and create a favorable environment for trade in pulp and paper products. At the same time, China’s paper enterprises should strengthen the expansion of the Southeast Asian market and reduce dependence on the US market, and China should continue to improve the waste paper recycling system and improve the utilization rate of domestic waste paper.

Labour market rigidity and trade margins

AbstractCountries differ, sometimes significantly, regarding their basic labour market structure. Despite the prevalence of theoretical literature, empirical studies examining the impact of labour market rigidity (LMR) on trade is sparse. Existing empirical studies have been limited to aggregate trade flows with cross‐sectional estimations; a limited set of countries (e.g. OECD or Latin America) or to the period after 1990. We utilise a gravity model of trade to examine the impact of LMR on exports for 145 countries between 1964 and 2004. We utilise dis‐aggregated product‐level trade data and decompose total exports into the extensive and the intensive margin to examine this relationship. We also utilise total aggregate international trade relative to domestic sales, which allows for the identification of LMR‐trade relationship, even in the presence of multilateral trade resistance controls. Finally, we estimate the effect of LMR on exports (and the margins) by focusing on a sample of European OECD countries via the difference‐in‐differences estimation. In all cases, we find that a rigid LMR reduces total exports, and this decrease is driven primarily by the intensive margin. Our findings are relevant as recent studies have found the intensive margin to be more important for long‐run export growth and especially for developing countries.

Merchandise trade of the unrecognized entities in West Asia. The gravity model of trade, including Abkhazia and South Ossetia

Abstract The study aims at presenting the specificity of the economy and merchandise trade of unrecognized entities in the Caucasus region, with a particular focus on Abkhazia and South Ossetia. The study also analyses the potential changes in merchandise trade structure and volume. The empirical analysis covers the period between 2015 and 2020. The conducted study has revealed that over the last years, Abkhazia and South Ossetia have improved their economic condition, increasing industrial production, developing services, and maintaining trade exchange with other states. However, as the outcomes of the gravity model of trade indicate, both unrecognized entities do not fully utilize its trade potential, especially with Georgia, Russia, and Turkey. Hence legitimizing trade between Abkhazia and South Ossetia may bring economic benefits not only for both entities but also for other countries, especially their immediate neighbors.

Putting Religious Bias in Context: How Offline and Online Contexts Shape Religious Bias in Online Prosocial Lending

Biases on online platforms pose a threat to social inclusion. We examine the influence of a novel source of bias in online philanthropic lending, namely that associated with religious differences. We first propose religion distance as a probabilistic measure of differences between pairs of individuals residing in different countries. We then incorporate this measure into a gravity model of trade to explain variation in country-to-country lending volumes. We further propose a set of contextual moderators that characterize individuals’ offline (local) and online social contexts, which we argue combine to determine the influence of religion distance on lending activity. We empirically estimate our gravity model using data from Kiva.org, reflecting all lending actions that took place between 2006 and 2017. We demonstrate the negative and significant effect of religion distance on lending activity, over and above other established factors in the literature. Further, we demonstrate the moderating role of lenders’ offline social context (diversity, social hostilities, and governmental favoritism of religion) on the aforementioned relationship to online lending behavior. Finally, we offer empirical evidence of the parallel role of online contextual factors, namely those related to community features offered by the Kiva platform (lending teams), which appear to amplify the role of religious bias. In particular, we show that religious team membership is a double-edged sword that has both favorable and unfavorable consequences, increasing lending in general but skewing said lending toward religiously similar borrowers. Our findings speak to the important frictions associated with religious differences in individual philanthropy; they point to the role of governmental policy vis-à-vis religious tolerance as a determinant of citizens’ global philanthropic behavior, and they highlight design implications for online platforms with an eye toward managing religious bias.

Gravity trade model with firm heterogeneity and horizontal foreign direct investment

AbstractWe develop a gravity trade model based on a theoretical analysis of heterogeneous firms that engage in horizontal Foreign Direct Investment (FDI) or exporting. The model allows firms' endogenous choice between exporting or FDI to impact the proportion of exporting firms and subsequently bilateral trade. Based on the theoretical results, we propose a three‐stage estimation procedure: First, estimate firm selection into horizontal FDI; second, use predicted probabilities from the first stage in the estimation of firm selection into exporting; and third, use predicted probabilities from the previous two stages in the gravity estimation of bilateral trade. We apply this procedure to the European Union (EU) processed food industry, which engages in worldwide FDI and trade. We estimate a baseline model of a standard gravity equation, a two‐stage model without FDI selection, and our proposed three‐stage model and quantify bias corrections in the coefficient estimates of the trade friction variables in the baseline and two‐stage gravity models. The bias corrections can be large. For instance, the inclusion of the proportion of Multinational Enterprises (MNEs) in the trade‐selection equation leads to a sign reversal of the distance coefficient estimate and results in an upward bias correction of . The three‐stage gravity corrects a downward bias of in the coefficient estimate of distance in the baseline but an upward bias of in the two‐stage method, which indicates that the two‐stage method overcorrects the downward bias in the baseline gravity.

The comparison of bilateral trade between China and ASEAN, China and EU: from the aspect of trade structure, trade complementarity and structural gravity model of trade

ABSTRACT This article mainly compares China’s bilateral trade relation with the Association of Southeast Asian Nations (ASEAN) and with the European Union (EU), mainly from the perspective of China. We make the trade relation comparison in terms of trade volume and structure, trade complementarity index and impact factors on bilateral trade flow. We find the following results: (1) China mainly exports high-tech electronic and electrical and medium-tech products to ASEAN, and high-tech electronic and electrical and low-tech manufactures to EU yet imports high-tech electronic and electrical products from ASEAN and medium-tech products from EU. (2) China has strong competitiveness in low-tech manufactures and high-tech electronic and electrical area yet comparatively low competitiveness in medium-tech area; (3) China has high trade complementarity with EU in low-tech area and high trade complementarity with ASEAN in high-tech electronic and electrical area; (4) Based on structural gravity model of trade, the GDP per capita, monetary freedom, trade freedom and human development index have significant impacts on China-ASEAN and China-EU bilateral trade; WTO membership has impact on China’s trade with ASEAN yet not with EU; distance has impact on China’s trade with EU yet not with ASEAN.