Gravity Model Of Trade Research Articles

Import Determinants and Potential Markets of Pakistan: An Application of PPML Gravity Model

Abstract The present study examines import determinants of Pakistan with the top 28 trade partners from 2002 to 2018. To achieve this objective, the augmented gravity model of trade has been applied by incorporating both time-variant and time-invariant variables. In addition, the analysis quantifies the impact of free trade agreements (FTA) signed by Pakistan with China and other trade partners. The results show that along with income and distance, FTA, common language, and common border plays an essential role in imports of Pakistan with its main trade partners. In addition to identifying trade determinants, the impact of adherence to a particular trade agreement was also examined. The results indicate that FTA signed by Pakistan with China and other trade partners has created trade opportunities for participating countries, highlighting the importance of trade liberalization for the long-run development of the country.

The Belt and Road Initiative and Cultural Bias in Bilateral Trade with China

The Belt and Road Initiative (BRI) is a blanket term used to describe China’s ambitious plans to create an economic belt consisting of overland and maritime infrastructure projects. Despite being marketed as a win-win partnership, assured to pilot both economic and development opportunities, many scholars are skeptical, with concerns regarding the initiative’s real intentions and benefits. Applying a trade gravity model, augmented with a Culture Based Development (CBD) element, and combined with a difference in differences empirical approach, I evaluate the impact from an ongoing BRI project in Haifa, Israel. There were two main sources of data in my study: The World Bank and the French CEPII institute (Centre d’Etudes Prospectives et d’Informations Internationales), with special data on linguistic proximity. My findings suggest that investment into the maritime port in Haifa has no positive effect on bilateral trade between Israel and its international trade partners. Interestingly, however, I find effects of linguistic proximity persist after the new construction of the BRI infrastructure.

A Study on the Trade Potential between Northeast China and Countries along the Northeast Passage of the Arctic

The navigation of the Arctic Channel has brought certain impact on the traditional international trade environment. Northeast China is the closest to the Arctic, so it is of great significance to study whether the future navigation of the new Arctic channel will have a positive impact on the cargo trade and transportation in Northeast China. This paper uses the panel data from 2010-2020, uses the expanded trade gravity model to conduct empirical tests, analyzes the influencing factors of the bilateral trade between the Northeast China and the countries of the Arctic Northeast Passage, and compares the trade potential of the Suez Canal Passage and the Arctic Northeast Passage. The results show that there is a significant negative relationship between shipping distance and trade volume; the opening of the Arctic Northeast Channel will increase the export potential and import potential of the Northeast China to the countries from the channel by 30.76% and 31.52% on average. Our results shed light on government policies aiming to improve the level of foreign trade in Northeast China.

Do Chinese Photovoltaic Products Have Trade Potential in RCEP Countries? A BP Neural-Network-Improved Trade Gravity Model Analysis

China plays an important role in the global trade of photovoltaic products, and the RCEP agreement provides more opportunities and possibilities for China. This paper develops an improved trade gravity model with BP neural networks to estimate trade potentials, and the following conclusions are obtained: (1) The BP neural network is a more effective estimation method than traditional pooled regression, fixed effects, and random effects, and the combination of multiple neural networks for prediction can lead to higher robustness and accuracy. (2) The potential of China’s trade in PV products to RCEP countries is relatively mature, but the scale of trade in PV products between China and Japan and other countries may still be further expanded. (3) China’s trade potential for different regions in the RCEP agreement changed historically in different processes, with China’s trade potential for the Oceania region declining, while its trade potential for the East and Southeast Asia region increased in recent years.

Trade Integration and Export Aspiration: Evidence from India’s Trade in Goods with BRICS Countries

The purpose of this study was to examine the dynamics of trade between India and the BRICS countries as well as to gauge the relative strength of Indian exports to those nations. The trade integration patterns among BRICS countries were also analyzed. To quantify the extent to which India’s exports correspond to the needs of its BRICS counterparts, a novel export aspiration index was constructed. The index of trade integration patterns has also been employed to quantify India’s trade integration pattern with other BRICS members. Further, the gravity model of trade has been employed to analyze the fundamentals of India–BRICS trade. The export aspiration in individual BRICS countries shows a diverse pattern. However, India’s export aspiration in these countries has improved, although marginally in the long run. Such empirical evidence substantiates that the relative strength of India’s exports within its BRICS counterparts has marginally improved over time. Moreover, the trade integration index indicates a similar trade integration pattern among the BRICS countries and corroborates the presence of inter-industry trade. Added to the conventional variables of the gravity model, India’s outward multilateral trade resistance and BRICS inward multilateral trade resistance significantly promote India–BRICS trade. Hence, the relative strength of Indian exports will increase substantially if India’s commodity composition is diversified by including more commodities in its export baskets that correspond to the needs and changing conditions of the BRICS economies.

ГРАВІТАЦІЙНА МОДЕЛЬ МІЖНАРОДНОЇ ТОРГІВЛІ: ВИТОКИ І СУЧАСНІ ПІДХОДИ

The article examines the historical origins of the formation of gravity modeling and its use in the study of the intensity of international trade. It is emphasized that the driving forces of international exchange and the search for optimal policy ways of its implementation are based on classical theories of international trade. They are based on a liberal approach to deny the need for state restrictions on the free flow of goods between countries in order to regulate the volume, structure and directions of the country's foreign trade. The contribution of outstanding economists to the development of the theoretical and methodological foundations of the construction of gravity models of international exchange is considered. The features of their application for empirical research in the field of international trade are characterized. Factors affecting international trade flows are identified. An analysis of theoretical and methodological approaches to the formation of an effective gravity model of foreign trade was carried out based on the search for factors that influence it and contribute to the intensification of international trade flows between partner countries. The specificity of the involvement of new additional variables in gravity models is shown. It is emphasized that the bifurcation processes taking place in the modern globalized world form new conditions of international exchange. Attention is focused on the fact that such a situation necessitates the further development of theoretical and methodological bases for forecasting the volume of international trade based on the identification of cause-and-effect dependencies and spatio-temporal relationships. The conducted review of the history of gravity modeling, its use in studies of the international trade intensity, the contribution of prominent economists to the deepening of the theoretical and methodological foundations of the of international exchange gravity models construction showed quite wide opportunities for their further improvement based on taking into account the factors that influence the volume of bilateral trade. It was investigated that the problems are: 1) Selection of variables of the gravity model from the side of export and import for its adaptation to modern conditions of the world trade. The bifurcation processes taking place in the modern globalized world form new conditions of international exchange. 2) Gravitational models are empirical models built on liberal and neoliberal theories of international economic relations. In the conditions of globalization, a high level of interaction and interdependence of countries, the intensification of international trade flows, the movement of resources from a weaker trading partner to rich and powerful states means the flow of resources from underdeveloped and poor countries to stronger and richer ones. Gravitational models of international trade are a reflection and improvement of this process.

Does Governance Wax or Wane the Bilateral Trade of Pakistan? An Application of Gravity Model


 
 
 
 Purpose: This paper aims to present an analysis on the effect of governance and its indicators on bilateral exports and bilateral imports of Pakistan with its major trading partner countries separately.
 Theoretical framework: This study has implemented the six indicators of governance for Pakistan and its exporting and importing partners in gravity trade model to demonstrate the influence of governance on bilateral trade.
 Design/methodology/approach: Indicators of governance (a disaggregate analysis) and a governance index (an aggregate analysis) in a panel data over the period 2000 to 2020 have been analyzed by using panel least square estimation technique.
 Findings: The findings reveal that the average effect of governance on bilateral exports is positive indicating that in general, the better quality of institutions boosts up the bilateral trade, and the outcome of the institutional quality on trade has “waxed rather than waned” with time. Further, the positive effect of governance on bilateral imports indicates that it is uncomplicated to trade with those trading partners having better institutions.
 Research, Practical & Social implications: Research, Practical & Social implications: This study suggests that there is a clear need to adopt the practices of good governance,accountability, rule of law, etc. for enhancing bilateral trade and would follow the rules developed by the institutions.
 Originality/value: This study is an attempt to examine the significance of governance in enhancing the bilateral trade of Pakistan. Findings of the study has elaborated with the economic reasonings that have never been explained in previous researches.
 
 
 

Trade creation and trade diversion effects of ACFTA on seafood exports

The gravity model is an econometric model used an as effective tool to explain the volume and direction of bilateral trade between countries. It is widely used in international trade and thus, in this article, we use the gravity model to examine the trade creation and diversion effects of ASEAN-China Free Trade Agreement (ACFTA) for the seafood industry by estimating the gravity trade model for the time period between 2003 and 2020 and between 10 countries. Initially, the estimation applied panel data with ordinary least squares (OLS) estimation, but there was a problem with heteroscedasticity and autocorrelation using the OLS estimator. Therefore, we will re-estimate the model by using the fixed effects model (FEM) and random effects model (REM). We estimate twice, once with data including 2020 and once excluding 2020 to understand the impact of the COVID-19 pandemic on commercial trends. The estimated results show that trade creation influences seafood. It is possible that the COVID-19 pandemic has no impact on trade diversion and creation, or that the 2020 data is too short for us to assess this impact. In conclusion, this article has achieved certain success in explaining the causes affecting trade flow in processed goods due to differences between the general tariff rate and the preferential tariff rate for ASEAN - Chinese seafood, and the close distance between commercial partners and converting certificate of origin (C/O) of goods to export. Analysis using the gravity model shows a positive impact on Vietnam's seafood trade flow when joining ACFTA.

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.

The Impact of Competition Policy Provisions in Regional Trade Agreements on Intermediate Product Trade

The deepening of the content of regional trade agreements has promoted the deep integration of global value chains. As an important part of the behind-the-border measures of regional trade agreements, competition policy provisions have an important impact on intermediate product trade. This paper constructs the depth index of competition policy provisions, uses the trade gravity model combined with Poisson's pseudo maximum likelihood estimation (PPML) and fixed effects to empirically analyze the impact of competition policy depth on the scale of intermediate product trade, and finally proposes policy recommendations for China to improve the construction level of regional trade agreements according to the conclusions.

Gravity models and the Law of Large Numbers

This paper examines the implications of uncertainty in gravity models of trade due to the violation of the Law of Large Numbers (LLN) that we document in the data. When the number of available technologies is finite and the LLN does not hold, the variance of the stochastic component in gravity models is large, which leads to the poor goodness of fit of gravity models and high uncertainty in comparative statics results. We offer a procedure that specifies counterfactual predictions in terms of distributions rather than point estimates and helps to account for such uncertainty. • We examine the implications of the Law of Large Numbers for trade gravity models. • Violations of the Law of Large Numbers lead to structural errors in gravity models. • The error terms are quantitatively important in the data and lead to uncertainty in the estimates of the gains from trade. • We develop a procedure that specifies counterfactual welfare predictions as distributions.

Global Value Chains’ Participation and Logistics Performance in Post-Soviet Economies

Abstract Post-Soviet countries have never been analysed in the global value chain (GVC) context. Therefore, in this study, we evaluate the degree of backward participation of GVCs in the manufacturing sector of post-Soviet countries. We also examine the quantitative linkage between GVCs and host countries’ logistics performance as a service-link component. We used the UNCTAD-Eora GVC database and employed a structural gravity trade model. The results illustrate a positive correlation between GVC backward participation in manufacturing and income levels in the post-Soviet economies. The empirical estimation using the structural gravity trade model demonstrates a quantitative linkage between GVC backward participation and the logistics performance of the host country. The level of logistics performance accounts for 70–80 percent of the degree of GVC backward participation. Our findings’ major policy implication is that post-Soviet economies’ logistics performance should be improved by erasing the Soviet era’s negative legacy. JEL Codes: F12, F13, F14, O57. Keywords: Global value chains, Logistics performance, Post-Soviet countries, Manufacturing, Structural gravity trade model.

Assessing interstate softwood roundwood trade in the southern United States: a gravity trade model approach

Intraregional trade of forest products is a critical component of regional and subregional timber markets in terms of supply chain planning and locating forest product manufacturing facilities. Based on a gravity trade model, we evaluated the various factors driving the interstate flows of softwood sawlog and roundwood pulpwood in the 13 southern US states: AL, AR, FL, GA, KY, LA, MS, NC, OK, SC, TN, TX, and VA. Biennial state-level panel data from 2011 to 2019 in 13 southern states were employed to estimate empirical sawlog and pulpwood trade models. The results suggest that state gross domestic product (GDP) of importing states, exporter and importer production, importer consumption, the distance between the trading partners, and the electronic logging device mandate are influential factors of softwood sawlog trade between the states. Similarly, state GDP, exporter pulpwood production, importer consumption, the distance between the trading partners, delivered timber prices, and pellet mill capacity in each state are found to be significant determinants of softwood pulpwood trade between the partners across the state borderlines. The findings provide forest managers and policy makers with additional insights on the growing bilateral timber trade dynamics in regional and subregional markets in the southern United States.

Effects of non-tariff measures on tea exports from Sri Lanka

This study employed the gravity model of trade to examine the effects of non-tariff measures (NTMs) on Sri Lankan tea exports. The study used a panel data set including bilateral exports retrieved from Sri Lanka and its ten major tea export destinations from 2010 to 2019. The frequency of NTMs on Sri Lankan value of tea exports shows an increasing trend. The gravity model estimations show that except for tariff, the coefficients of all other gravity variables are statistically significant and aligned with theoretical justifications. The magnitude of the gross domestic product of Sri Lanka and importer countries and the presence of colonial links positively act on tea exports from Sri Lanka, while the distance between capital cities of trading partners and NTMs lower the exports. More specifically, imposing an additional NTM diminishes the value of tea exports by 48%. Furthermore, the NTMs have a 66% tariff equivalent effect. Hence, Sri Lanka's best prospects for profiting from tea exports depend on altering NTM policies, which are just as significant as other trade barriers.

‘Los von London’: A comparative, empirical analysis of German and British global foreign banking and trade development, 1881–1913

AbstractThe role of finance in the development of trade draws increasing attention from economists and economic historians. Yet empirical studies, especially from an historical perspective, continue to be scarce. This study analyses the role of German and British foreign banks in the internationalisation of trade during the first globalisation. It creates a novel data set on the bilateral trade of Germany and Great Britain with the rest of the world and the number and geographical distribution of German and British foreign banks between 1881 and 1913. Using an augmented gravity model of trade, the article shows that banks had a significant positive impact on exports and imports and that this effect was even more pronounced in case of German banks and trade. Moreover, the effect of German banks on trade is the highest in the years closer to bank entry, supporting the idea of German banks being initiators of trade. In contrast, the effect of British banks seems constant over time.

The impacts of carbon tariffs on international trade flows and carbon emissions: An analysis integrating trade elasticities with an application to US-China trade

Carbon tariffs have been widely studied as a prominent climate policy in terms of their influences on the economy and the environment. However, previous studies of their effectiveness did not incorporate into the analysis of some key factors, including, notably, trade elasticities. This paper aims at reducing the gap between trade economics and environment studies by integrating trade elasticities into the analysis of carbon tariffs' impacts on trade flows and carbon emissions embodied in exports. We start by adopting the gravity trade model and constructing a panel data set of 63 countries from 2005 to 2015 to calculate the trade elasticities across 13 industries. With a simple model that translates carbon tariffs into tariffs, we evaluate the cross-country and cross-industry impacts of carbon tariffs. A model to forecast the effect of carbon tariffs on China-US trade under different scenarios is also provided. We discover that industries' trade elasticities and carbon intensities play an essential role in determining carbon tariffs' impacts. Furthermore, our estimations show the threshold carbon tariffs for the 13 industries with an average of $42/tCO2. We found out that if the U.S. stopped importing from China by replacing all Chinese exports with its domestic productions, it would emit 88.8% fewer carbon emissions than China does, which would contribute to a 0.65% decrease in world carbon emissions. Other scenarios of replacing all Chinese exports with Canadian, Japanese, or Mexican exports show similar results. This paper illuminates the critical importance of incorporating trade elasticities when designing carbon tariffs.

A Machine Learning Approach to Forecast International Trade: The Case of Croatia

Abstract Background: This paper presents a machine learning approach to forecast Croatia’s international bilateral trade. Objectives: The goal of this paper is to evaluate the performance of machine learning algorithms in predicting international bilateral trade flows related to imports and exports in the case of Croatia. Methods/Approach: The dataset on Croatian bilateral trade with over 180 countries worldwide from 2001 to 2019 is assembled using main variables from the gravity trade model. To forecast values of Croatian bilateral exports and imports for a horizon of one year (the year 2020), machine learning algorithms (Gaussian processes, Linear regression, and Multilayer perceptron) have been used. Each forecasting algorithm is evaluated by calculating mean absolute percentage errors (MAPE). Results: It was found that machine learning algorithms have a very good predicting ability in forecasting Croatian bilateral trade, with neural network Multilayer perceptron having the best performance among the other machine learning algorithms. Conclusions Main findings from this paper can be important for economic policymakers and other subjects in this field of research. Timely information about the changes in trends and projections of future trade flows can significantly affect decision-making related to international bilateral trade flows.

Analysing the Flow of Intra-Industry Trade in the Central African Monetary Community

This paper empirically examines the flow of Central African Economic and Monetary Community (CEMAC) intra-industry trade at different sectors and product categories using the Standard International Trade Classification (SITC). An augmented gravity model of trade was adopted to analyse changes in the different sectors and product categories from 1995 to 2015; this is the time span for which consistent and useable time series data is available for CEMAC. A time fixed effects variable and within estimator were included to control for unpredictable changes in exogenous factors and capture the heterogeneity of the sample over time. The results showed that prior to the formation of the CEMAC customs union, the growth in intra-industry trade had been higher than that of the CEMAC customs union with the exception of very few sectors and that since the establishment of the customs union in 1994, IIT trade has remained low and only Cameroon has witnessed an increase in trade with member states, especially in food and live animals. The results also showed that only mineral fuels exports had been significant and positive for Chad and Equatorial Guinea.

Is dirty trade concentrating in more polluting countries? Evidence from Africa

Among growing concerns about the environmental impact of human activities, international trade is increasingly in the spotlight. However, the role of Africa has been widely disregarded. In this paper, we assess the trade–environment link in African trade patterns by estimating a gravity model for trade with data from 140 countries for the period 2002–2018. Our findings reveal significant insights: first, that dirty trade appears to be increasingly concentrating in African countries. That is, exports of dirty goods seem to have shifted to countries with less stringent environmental regulations. Second, exports from dirty industries tend to concentrate in those countries with higher levels of capital endowments, although this effect appears to be weaker. Third, the results hold when we consider different exporter and importer country scenarios, such as trade flows with Europe (the main African trading regional partner) and intraregional African trade patterns. In addition, they hold especially for more differentiated products, with some particularities in the case of homogeneous ones. These findings have important implications in terms of both trade and environmental policies as well as for building the basis for sustainable development in Africa.

Patterns and drivers of embodied carbon intensity in international exports: The role of trade and environmental policies

International production fragmentation has generated and reallocated value added as well as CO2 emissions across economies. Prior studies have mainly focused on the embodied emissions or value added in trade. The evidence regarding the embodied emission intensity, and particularly the role of policies, however, remains sketchy. This paper investigates the role of trade and environmental policies in embodiment flows by combining input-output analysis and the gravity model of trade, covering 43 economies over 2000–2014. First, we derive the domestic carbon and value-added contents of bilateral exports in an input-output framework, and find a declining trend in emission intensity in exports. Second, we use the gravity model to examine the determinants of trends in both flows, and further infer the combined effects on intensity. The results show that an open trade policy can lower emission intensity in exports by facilitating the selection of products that are higher in value-added but less emission-intensive. Economies with more stringent environmental policies have a lower emission intensity in exports, but a higher emission intensity in their imports, which suggests carbon leakage. Effective global climate mitigation will require a closer look at the emission intensity in exports and collective action to address the detrimental effects of carbon leakage.