Bilateral Trade Patterns Research Articles

A political economy analysis of changes and continuities in Iran–Africa trade relations: a case of South–South dependency?

This paper provides a political economy analysis of the bilateral trade relations and patterns of exchange that existed between Iran and Sub-Saharan Africa (SSA) from 1962 to 2021. The paper contributes to the growing literature on Iran–Africa relations by empirically delineating not just the changes, but also the continuities between Iran and its African trading partners before and after the Iranian Revolution. It also adds nuance to the broader scholarship on South–South cooperation by showing the disparity between the rhetoric of South–South solidarity and reciprocity between Iran and SSA, on one side, and their low and fluctuating trade volumes, on the other. These volumes resulted from historical inertia or path dependency and structural factors, including trade complementarities and geopolitical conditions, more than demographic, cultural, or religious realities. They were also shaped by the agency and decision-making of Iranian and African leaders and officials regarding the extent to economically engage with each other.

Deploying Machine Learning Methods to Predict Global Trade Patterns: The Case of Beef

Highlights Machine Learning (ML) methods are offered as an alternative to conventional techniques for understanding global commodity trade. A formal comparison is made between ML results with those from the Poisson Pseudo Maximum Likelihood (PPML) Estimator, which is the most commonly used statistical technique for bilateral trade analysis. PPML takes into account fixed effects and the dynamic nature of panel data to provide a better fit and higher prediction accuracy than ML in the context of in-sample forecasts. ML methods have strengths in feature selection, better validation statistics, and stronger predictive power than PPML, especially with out-of-sample forecasts. Abstract. In international economics, there has been a steady stream of innovations to explain patterns of trade between and among countries with emerging techniques. The most recent - Poisson Pseudo Maximum Likelihood (PPML) estimator – corrects for a potential bias caused by the large proportion of zero observations in bilateral trade data. Alternatively, this study offers Machine Learning (ML) as an option, especially in the presence of finer data on bilateral trade patterns. Using monthly and HS-6-digit (product) level data, the study finds that the main advantage of PPML is its accuracy of forecasts in-sample, but feature selection is somewhat rigid due to the inclusion of a large number of pair-wise fixed effects. ML models have the advantage in selecting features when a long list of explanatory variables is to be considered. Model validation statistics such as MAE and RMSE favor ML methods, but PPML tends to yield higher goodness of fit. In the out-of-sample context, ML has better accuracy than PPML, and a one-step walk-forward ML approach further improves the accuracy of ML forecasts. While PPML has a rich research and application history, emerging ML techniques have sufficient room for improvement in their adaptation to economic analysis. Keywords: Beef, Bilateral Trade, Boosting, Machine learning, ML for Policy

Re-examining the trade competitiveness between USA and China: Empirical evidence from prominent international trade measures

The study re-examined the pattern of bilateral trade and extent of trade competitiveness between USA and China. Since both countries seem to be the largest bilateral trading partners in the world and the two largest economies in terms of gross domestic product, it is imperative to re-examine the bilateral trade relationship between them empirically. Previous studies have employed non econometric approaches to examine the effects of trade competitiveness on the volume and structure of bilateral exports between USA and China. However, this study adopts prominent international trade measures such as Revealed Comparative Advantage Index, Export Similarity Index and an econometric technique, the Gravity-Autoregressive Distributive Lag model to empirically analyze data spanning from 1992 to 2020 sourced from World Integrated Trade Solution (WITS) database. The results revealed that USA and China export similar but differentiated products and it is the product differentiation that explains the huge volume of trade between them despite export similarity. Furthermore, the study discovered that there exists a moderate trade competitive but great trade complementary relationship between USA and China. Meanwhile, the study also found that a decrease in the extent of trade competitiveness between China and USA will significantly lead to an increase in the volume of bilateral exports between USA and China while an increase in the extent of trade competitiveness between China and USA will significantly lead to a decrease in the volume of bilateral exports between USA and China. Therefore, both countries will substantially benefit from trade if they cooperate rather than compete.

The international trade in human vaccines before COVID‐19

AbstractThe recent COVID‐19 pandemic has highlighted the importance of global access to human vaccines. There is, however, no empirical work on either the unequal distribution of international trade or on its determinants. Applying a gravity model to the UN Comtrade database between 2000 and 2019, we explain the patterns of bilateral trade across 116 countries. Using the Poisson Pseudo‐Maximum Likelihood methodology, our results show that inequalities in international vaccine trade have steadily increased. In general, supply and demand drivers play a role in explaining the flow of human vaccines. The impact of these drivers varies depending on the income level of the importing country. High‐income countries intensify their flows with demand factors such as GDP per capita, or supply factors such as the location of big pharmaceutical companies. Conversely, low‐income countries receive more vaccines according to their population. Our results show that a poor country that houses a big pharmaceutical company acts as an exporting platform to developing and poor countries. Middle‐income countries present features similar to rich countries both by producing more and also by exporting more. The imbalance endangers the global fight against the current COVID‐19 pandemic.

Europe's energy crisis: Are geopolitical risks in source countries of fossil fuels accelerating the transition to renewable energy?

This paper provides first empirical evidence on the effect of geopolitical risks in fossil fuel supplier countries on renewable energy diffusion in fossil fuel importing countries and the mediating roles of rising electricity prices and high import dependence. For this end, aggregate measures of geopolitical risk that countries are exposed to through fossil fuel imports are determined. This is done by combining detailed data on bilateral trade patterns for coal, oil, and natural gas of 37 countries in Europe with that on geopolitical risks in supplier countries. Using an instrumental variable approach, the study reveals that geopolitical risks in supplier countries tended to foster renewable energy diffusion in Europe during the period 1991–2021. The effects are especially pronounced for geopolitical risks related to coal and natural gas imports, while the importance of risks related to particular fossil fuels differed for the build-up of the individual renewable energies, i.e. wind, solar, and biomass. Rising electricity prices and high import dependence, particularly for coal, partially amplified the effects on renewable energy diffusion. Despite the high import dependence, natural gas appears to have played in part a role as a bridging technology for energy transition.

Cuba & Soviet Union: Trade Pattern Pitfalls (1970-1988)

This article analyzes the interaction between the Soviet Union and Cuba, the bilateral trade in sugar and nickel ores as well as direct assistance of the USSR to the Castro regime. The scholars investigate the dependence of the Cuban economy on economic cooperation with the Soviet Union and indicate that the pattern of bilateral trade was extremely harmful to Cuba since Havana took advantage of the artificial steady demand for the main components of Cuban exports from the USSR and other Comecon countries. The researchers point out that such a model of trade was one of the key factors that doomed the State’s economy to a severe economic crisis of the 1990-s and left Cuba behind other Latin American economies even the extremely depended on a particular resource export, ones such as Chile and Venezuela in terms of economic development.

Explaining bilateral patterns of global wine trade, 1962–2019

AbstractThis study uses gravity models to explain bilateral patterns of global wine trade since 1962. This is, to our knowledge, the first study on global wine trade covering the second wave of globalization as a whole. The results suggest that the impact of distance, common language, and common colonizer post-1945 on wine trade was lower in the 1991–2019 period than in the 1962–1990 period. We also use gravity models to explain the impact on bilateral wine trade patterns of similarities across countries in the mix of winegrape varieties in their vineyards. Although our models do not allow us to identify causality, the results suggest that countries trade more wine with each other the closer their mix of winegrape varieties.

Effects of Eliminating the US–China Trade Dispute Tariffs

AbstractThis paper examines the economic implications of the tariff increases by the United States and by China during the Trump era trade dispute and the gains from their potential removal. The increases were dramatic, with the US raising tariffs on industrial products by a factor of six – with particularly large tariff increases on intermediate and capital goods – and China increasing its tariffs on US agricultural products more than five-fold. These changes distort trade and production decisions in both countries and undercut the global trading system. They resulted in substantial economic losses to each country, with import volumes reduced by 4.9% in China and 4.5% in the USA, and bilateral trade patterns were massively distorted. Their cost to the United States rose at the end of 2021, when the import expansion provisions of the Trump era Phase One Agreement expired. Negotiating the abolition of these costly and disruptive tariffs would generate substantial real income gains for both countries and help lower US consumer prices.

Analysis of Bilateral Trade between India & China Since 2001

This research analyzes the existing bi-lateral trade patterns between India and China with a view to locate in the development context. It was essential to analyze the data since 2000 after implementing economic reforms in both countries. This research attempts to analyze the bilateral trade relation between these two countries, and also, focus on strategic frameworks. For determining the export performance, Revealed Symmetric Comparative Advantage (RSCA) method is applied. This study also recommends that trade balance is possible between India and China through making the right policies.

Reshaping UK/Ireland relations: Brexit’s cross-border and bilateral impact

Abstract This article considers the implications of Brexit for UK–Irish relations. It examines how Brexit has altered the terms of the British–Irish relationship by considering the impact on bilateral and cross-border economic and trade patterns. The article focuses on two primary economic effects. First, the short-term impact of Brexit and the Ireland/Northern Ireland Protocol on the Northern Ireland economy, and on trade relations between Great Britain and Ireland and across the Irish border; and second, how Brexit has spurred a discussion about the (economic) appropriateness of partition on the island of Ireland in the post-Brexit period, the extent to which it has led to increased calls for a border poll, and how any future unification process might be economically managed. This includes some provisional evaluation of the economic costs and challenges in relation to future constitutional change for the island of Ireland and the UK. The discussion here connects with wider British constitutional issues including calls for Scottish independence and the possible break-up of the UK.

Potential impacts of ballast water regulations on international trade, shipping patterns, and the global economy: An integrated transportation and economic modeling assessment

Global ballast water management regulations aiming to decrease aquatic species invasion require actions that can increase shipping costs. We employ an integrated shipping cost and global economic modeling approach to investigate the impacts of ballast water regulations on bilateral trade, national economies, and shipping patterns. Given the potential need for more stringent regulation at regional hotspots of species invasions, this work considers two ballast water treatment policy scenarios: implementation of current international regulations, and a possible stricter regional regulation that targets ships traveling to and from the United States while other vessels continue to face current standards. We find that ballast water management compliance costs under both scenarios lead to modest negative impacts on international trade and national economies overall. However, stricter regulations applied to U.S. ports are expected to have large negative impacts on bilateral trade of several specific commodities for a few countries. Trade diversion causes decreased U.S. imports of some products, leading to minor economic welfare losses.

Visualizing bivariate local spatial autocorrelation between commodity revealed comparative advantage index of China and USA from a new space perspective

The development of trade research plays an important role in enhancing the understanding of the trade relationship structure, evolution and relevant driving factors. While there is little research on analyzing and visualizing bilateral trade patterns and the evolution of numerous kinds of commodities. In this paper, we respectively calculate revealed comparative advantage index (RCAI) of each traded commodity of China and USA in 2017. Then the RCAI of thousands of commodities have been mapped to a two-dimensional space and visualized in a grid system by using digital trade feature map method. On that basis, bivariate local spatial auto-correlation features between China – USA have been comprehensively depicted.

Discrepancies in the Brazilian tobacco production chain: raw inputs, international trade and legal cigarette production.

The significant market share of illicit cigarettes in Brazil is well established in the literature, nonetheless lacking clarity in terms of its actual size. Paraguay has a paramount role in this discussion, acting both as a supplier of illegal tobacco products to Brazil and as buyer of inputs from Brazil. A proper analysis of the illicit cigarette market in Brazil necessarily involves a deeper discussion of the Paraguayan production chain and its interaction with the Brazilian market. International data were used to establish the bilateral legal trade pattern of tobacco-related products between Paraguay and Brazil, including inputs and final outputs. Inspired by the technical requirements methodology, available unmanufactured tobacco within Brazil was obtained by adding-up domestic production with net imports. Its historical behaviour was compared with legal cigarette production patterns within Brazil. Supposing rational agents, these two links of the Brazilian cigarette production chain should behave similarly: for lower final usage, less domestically available supply. Any discrepancies would suggest something abnormal in the production chain. Brazil is a relevant legal supplier of intermediate goods for the Paraguayan tobacco complex and has an irrelevant position as legal buyer of Paraguayan tobacco-related goods (either inputs or final goods). Paraguayan net imports of production inputs seem to be abnormally high for their legal needs. In Brazil, a clear discrepancy between domestically available unmanufactured tobacco (input) and tax-based cigarette production (output) emerged throughout the years and, even more striking, has been growing over the years. Excessive cigarette production inputs in Paraguay suggest a potential oversupply of cigarettes in that country-likely diverted to illicit trade. Likewise, discrepancies in the Brazilian tobacco production chain are also evidence of illicit tobacco trading in Brazil-not necessarily of final products. A deeper analysis of the Brazil/Paraguay tobacco supply chain would be welcomed given the likely operation of these two countries as a single 'production/consumption hub' of both legal and illegal products (either inputs or final tobacco products). Public policies should foster controls not only on cigarettes but also on raw inputs for their production.

Indo-Nepal Trade and Investment: An Analysis

India and Nepal have traditionally shared a unique relationship of friendship and economic cooperation. The relationship is characterised by an open and people-friendly border and is built on shared historical, cultural, linguistic and ethnic links between people residing in India and Nepal. With Nepal being a priority under India ‘Neighborhood First’ policy, strengthening the economic relationship holds immense significance and potential for both the countries. While the political relations between India and Nepal have been extensively studied, there is not much literature that explores the economic relationship between the two nations. This is an important issue to study, as India is Nepal’s largest export market, the biggest source of its imports, the top investor of foreign capital stock and among the largest donors of foreign aid. India also provides Nepal transit facility through its territory to access seaports for trading with the rest of the world. Given this, the main objective of this article is to suggest policy measures, which can increase bilateral trade and investment between India and Nepal. The article analyses the bilateral trade patterns and estimates the maximum additional trade potential. A wide range of issues of importance pertaining to bilateral trade, including tariffs, levy of an agricultural reform fee, under utilisation of the tariff rate quota, non-tariff measures, issues related to Rules of Origin (ROO) and physical barriers to cross-border movement of goods are discussed. The trends and changing sectoral composition of India’s investment in Nepal and barriers and opportunities for Indian investment in Nepal are also analysed. The article concludes by charting a way forward for bolstering economic cooperation between the two countries by listing down recommendations for enhancing trade, addressing non-tariff barriers, upgrading infrastructure to improve connectivity and enhancing Indian FDI in Nepal. JEL Classification: F10, F13, F15, F50, F53, P45

Trade effects of the New Silk Road: A gravity analysis

This paper takes a first look at the trade effects of China’s Belt and Road Initiative, also referred to as the New Silk Road, on the 71 countries potentially involved. The initiative consists of several infrastructure investment projects to improve the land and maritime transportation in the Belt and Road Initiative region. The analysis first uses geo-referenced data and geographical information system analysis to compute the bilateral time to trade before and after the Belt and Road Initiative. Then, it estimates the effect of improvements in bilateral time to trade on bilateral export values and trade patterns, using a gravity model and a comparative advantage model. Finally, the analysis combines the estimates from the regression analysis with the results of the geographical information system analysis to quantify the potential trade effects of the Belt and Road Initiative. The paper finds that (i) the Belt and Road Initiative increases trade flows among participating countries by up to 4.1 percent; (ii) these effects would be three times as large on average if trade reforms complemented the upgrading in transport infrastructure; and (iii) products that use time sensitive inputs and countries that are highly exposed to the new infrastructure and integrated in global value chains have larger trade gains.

Technology, ecology and agricultural trade

I develop a general equilibrium framework for agricultural trade policy analysis that allows agro-ecological characteristics to influence patterns of specialization within the agricultural sector and trade costs to be product-specific. This induces substantial variation in market share elasticities with respect to a given exporter’s trade costs across its competitors, with the largest magnitude elasticities between countries most likely to compete head-to-head in the same products. The model is thus able to generate more nuanced predictions for how bilateral agricultural trade and production patterns shift in response to changes in policy than existing models. I provide a novel methodology to estimate the parameters of the distribution of productivity and trade costs that draws on techniques pioneered in the discrete choice literature. This approach has the considerable advantage of allowing me to parameterize and solve a product-level conceptual model while relying on very little data beyond widely available sector-level data used in a standard gravity model. This framework promises to allow researchers to make more informed predictions for how global agricultural trade and production patterns shift in response to policy change.

International accreditation, linguistic proximity and trade in medical services

The recent growth in the globalization of medical services has attracted broad attention from scholars and policymakers. The intimacy and risk associated with many medical services makes these markets especially sensitive to trade barriers, transaction costs and asymmetric information. This paper uses a gravity model to investigate the factors associated with the global pattern of bilateral trade in medical services. Using data from the United Nations International Trade in Services Database, we differentiate between trade flows in which the recipient travels to the service provider, ‘medical tourism,’ and those trade flows in which the service is delivered to the recipient, ‘other health services.’ Our findings indicate that, after controlling for various economic, historical and geographic linkages, linguistic proximity and international accreditation are not significant predictors of the bilateral pattern of medical tourism, though they are associated with greater trade in other health services. We argue the key difference is that trade in other health services, including medical transcription, diagnostic analysis and laboratory services, is akin to trade in intermediate inputs. The medical service providers contracting for these services are especially sensitive to risk and have strong incentives to monitor quality. By contrast, medical tourism is a market in which patients do not have strong incentives to engage in costly monitoring or information gathering. Providers seeking to market their services to patients abroad have mitigated the effects of linguistic dissimilarity and asymmetric information by exploiting the strong complementarities between medical and non-medical tourism services.

Destination country financial development and margins of international trade

We demonstrate theoretically and empirically that financial development of the destination country is as important as that of the origin country in shaping bilateral trade patterns, on both the extensive margin and the intensive margin of international trade.

Estimating the Effects of the Totalization Agreements

This paper quantifies the effects of the totalization agreements that coordinate the United States Social Security program with the comparable programs of other countries. For each treated country that has signed an agreement with the U.S., we construct a synthetic control country by properly weighting other countries that have not signed a totalization agreement with the U.S. to make sure that the resulting synthetic control mimics the behavior of the treated country before the totalization agreement entered into force. Using the synthetic country to approximate what would happen to the treated country after the agreement, we find, on average, that totalization agreements reduce U.S. exports significantly and increase U.S. imports and U.S. foreign direct investment in the fifth year after the agreement. Moreover, we find the effects are quite heterogeneous across countries/agreements, with some agreements increasing U.S. exports and others decreasing U.S. imports, both of which are the opposite of the average effects. In future work, we will investigate why the effects vary across countries by relating the estimates in this paper to the bilateral trade patterns between the U.S. and the treated countries, as well as the number and composition of beneficiaries of the totalization agreements.

Trade Potential between India and Central Asia

South–South bilateral trade partnerships have been growing increasingly important, and this article analyses the current patterns of bilateral trade between India and five Central Asian countries and the potential for improving them. We apply the gravity model of trade to construct a trade potential index from an Indian perspective and assess the potential for improving India’s trade with Central Asia. We find that the volume of trade between India and Central Asia in 2015 could be six to ten times greater than the actual volume. Political disturbances in the countries that fall along the direct trade route are a major barrier to trade in this region; therefore, we re-examine the potential for trade using alternate routes via Iran and China. We find that the potential for greater bilateral trade between India and Central Asia continues to be positive. JEL Classification: F10, F14