Stochastic Frontier Gravity Model Research Articles

Unlocking Kenya's Export Potential: Opportunities in the African Continental Free Trade Area

Regional trade agreements enhance export market prospects by providing preferential access. Since 1986, Kenya has embraced an export-led growth strategy, unswervingly executing trade liberalization through bilateral, regional, and multilateral trade agreements. This study assesses Kenya's export potential within the African Continental Free Trade Area (AfCFTA) framework, intent on its bilateral trade prospects with six AfCFTA member states namely Cameroon, Egypt, Ghana, Mauritius, Tanzania and Tunisia. Utilizing the stochastic frontier gravity model, the analysis discloses that Kenya’s average export potential is strong, with potential rates of 94% for Cameroon and Tunisia, 66% for Mauritius, 93% for Egypt, 66% for Ghana, and 56% for Tanzania. The findings show that African states possess considerable export potential in agricultural and value-added products. To capitalize on this potential, it is critical to identify specific commodities that align with markets where Kenya's strengths are positioned. The study concludes that a targeted strategy focusing on specific goods for specific markets, along with increased export of agro-processed products through value addition and diversification, can effectively harness this potential.

Global supply chain flow planning for Chinese manufacturing under the BRI: An SFG-DRO method

The Belt and Road Initiative (BRI) has fostered the free flow of commodities and optimal distribution of resources for the global manufacturing supply chain (GMSC), meanwhile confronted with risks and uncertainties. This paper proposes the SFG-DRO method, which can well solve the flow distribution problem of GMSC under the BRI with uncertainties. The proposed method combines trend prediction from the stochastic frontier gravity (SFG) model with 1-Wasserstein fuzzy set-based distributionally robust optimization (DRO). Additionally, this paper integrates the principles of the column and constraint generation (C&CG) algorithm with the particle swarm optimization (PSO) algorithm to handle the above two-stage nonlinear problems efficiently. The results show that the SFG-DRO distribution method significantly reduces transportation costs by 25% and enhances security. By examining flow distribution across three key BRI channels, this paper identifies underexploited markets along the southward channel and substantial market potential with security risks along the northeast sea-land channel, proposing relevant improvement suggestions.

How far India has succeeded in harnessing its export potential in rice? Evidence Using Stochastic Frontier Gravity Model

This study employs the stochastic frontier gravity model (SFGM) to objectively assess the determinants of India’s rice exports from 2001 to 2019 across 22 major export destinations, highlighting untapped export potential and providing actionable policy recommendations for enhancing competitiveness in global rice markets. Results show that India's economic growth (GDP) and the GDP of importing nations positively impact rice exports. Conversely, geographical distances (representing transportation costs) and higher import tariffs act as deterrents. The devaluation of the Indian rupee positively influences export revenues. Common language benefits exports, while regional trade agreements show minimal impact. The study estimates significant untapped export potential between India and its partners, emphasizing the need for improved trade facilitation, logistics, and agreements. To maximize India's rice export potential, policymakers should prioritize quality compliance, streamline regulations, and invest in infrastructure and R&D for rice cultivars. Negotiating favorable trade agreements and implementing existing export policies like the New Agricultural Export Policy will aid market access and competitiveness.

Analysis of China's Export Efficiency and Potential of Digital Products to RCEP Countries-based on the Stochastic Frontier Gravity Model

Analysis of China's Export Efficiency and Potential of Digital Products to RCEP Countries-based on the Stochastic Frontier Gravity Model

Analysis of Competitiveness and Efficiency the Export of Essential Oils from Indonesia

This study analyzes the competitiveness, efficiency, and factors influencing Indonesia's essential oils exports using the Stochastic Frontier Gravity Model (SFGM). The main variables examined include Gross Domestic Product (GDP), Revealed Comparative Advantage (RCA), population, exchange rate, and geographical distance. The findings indicate that Indonesian essential oils are highly competitive in international markets, particularly in France, Spain, and Switzerland. Significant factors affecting export value include the real GDP of the destination country, RCA, population, exchange rate, and geographical distance. Additionally, inefficiency factors are influenced by area, language, business freedom, investment freedom, and financial freedom. Export efficiency is categorized into five levels. This study provides empirical insights into the impact of economic and non-economic factors on the export performance of Indonesian essential oils, offering valuable implications for policymakers and industry stakeholders to enhance global competitiveness and efficiency.

Kenya’s macroeconomic policies and trade efficiency within the East African Community: A stochastic frontier analysis

Despite Kenya dominating trade volumes in the East African Community (EAC), it has been trading below its potential within the region. This is also in spite of the increased scope of the country’s trade opportunities resulting from the region’s increased market integration. Empirical evidence has shown that macroeconomic policies influence international trade flows. However, there is limited empirical evidence on the effect of macroeconomic policies on trade efficiency. The few existing studies on this topic have also used estimation techniques that depict efficiency as being drawn from an average level of trade and not the optimal level of trade, as well as also not separating the effects of inefficiencies from the statistical noises. This, therefore, creates a knowledge gap that this study aims at investigating by using the stochastic frontier gravity model (SFGM), to determine the effect of Kenya’s macroeconomic policies on its trade efficiency within the EAC. The study used annual panel secondary data for the period 2000 to 2021. This study finds that the GDP of Kenya and that of its EAC trading partners, the geographical distance and border significantly affects trade volume. It also finds that globalization plays a significant role in influencing Kenya’s trade. For the inefficiency model variables, exchange rate depreciation was found to significantly increase trade efficiency, while increase in tariff rate had an adverse and significant effect. Further, the study included corruption as a control variable and found that it significantly increases trade inefficiency. Kenya, though trading at an average efficiency level of 86.91 percent, was found to have high unexploited trade potentials within the region especially with Tanzania and Uganda. The study recommends that Kenya’s policymakers deliberately advance the macroeconomic policies that promote trade efficiency while at the same time closely monitor the ones that hinder efficiency.

The efficiency of China's export trade with Africa and its influence mechanism

AbstractThis paper calculates the trade efficiency of China's exports to Africa by considering trade inefficiency factors, such as Chinese aid to Africa and Chinese contracted projects. Based on a stochastic frontier gravity model and data for China's exports to 38 African countries from 2010 to 2020, this study draws the following conclusions. First, trade inefficiencies, such as China's aid and contracted projects, play a positive role in promoting China's export trade to Africa. Second, the efficiency of China's export trade to Africa varies significantly in different regions, among which countries with high export trade efficiency are concentrated in North and South Africa. Third, the trade potential and trade expansion space of China's exports to Africa vary significantly among different product sectors, which provides much space for promoting trade policy. We highlight that China's government should develop differentiated regional trade policies due to regional heterogeneity in terms of export trade efficiency between China and African countries.

Assessing the Efficiency and Potential of China’s Apple Exports

This study elucidates the factors impacting China’s apple trade, its efficiency, and opportunities for increased revenue. This study adopts a stochastic frontier gravity model on China’s apple exports data, covering the period from 1997 to 2022 across 38 significant trading partners. The finding demonstrates that the economic growth of China and its trading partners substantially boosts apple export volumes, with a positive correlation between GDP growth and export flows. The research also highlights the deterrent effect of geographical distance on exports and reveals a complex negative relationship between the per capita GDP of importing nations and export efficiency, shedding light on the nuanced nature of trade dynamics. Furthermore, the study finds that the appreciation of China’s currency plays a crucial role in enhancing export efficiency by lowering transaction costs. Meanwhile, increased agricultural land in importing countries presents competitive challenges, impacting export performance negatively. Geographical proximity and infrastructural features, such as shared borders and lack of access to seaport, are identified as significant factors in export efficiency. The analysis unveils considerable untapped export potential in various countries, suggesting a strategic avenue for market expansion. To optimize China’s apple export strategy, policymakers are advised to consider currency management, negotiate trade agreements that mitigate distance and per capita GDP effects, and target markets with high untapped potential, thereby facilitating sustainable growth in China’s apple export sector.

A Study on Export Trade Efficiency and Potential of Korean Semiconductor Industry: Empirical Evidence from 72 Trade Export Countries

Purpose - The semiconductor industry is an integral part of the Korean economy. Trade competition in semiconductors, the core component of the fourth industrial revolution, has become increasingly fierce. In this context, this study aims to empirically analyze the current situation, international competitiveness, and challenges faced by Korea’s semiconductor export trade from the perspective of trade efficiency by using Korea’s semiconductor export trade data. Design/Methodology/Approach - Using a stochastic frontier gravity model, this study analyzes the data of 72 countries and regions that have been the main targets of Korea’s semiconductor exports for the past 22 years using an empirical approach to investigate the main factors affecting Korea’s semiconductor export trade, trade efficiency, and trade potential. Findings - From the division of semiconductor export market type, there are 13 saturated countries, and the trade volume accounts for 77.86% of the total trade volume of Korea’s semiconductor exports. There were 31, 16, and 12 expansion, development, and iceberg-type countries, respectively. In addition, the regression results show that Korea’s population size and the R&D expenditures of the countries with which it trades have a significantly positive effect on semiconductor exports. Research Implications - To date, no more systematic empirical research literature on the efficiency of Korean semiconductor export trade has been found, and this study fills the gap in the literature in this area through an empirical analysis approach. This study aims to provide a reference value in Korea’s semiconductor export trade.

How business environment of countries along the Belt and Road impacts China’s OFDI efficiency: a stochastic frontier gravity model approach

The Belt and Road Initiative (BRI) provides a new opportunity for the continued deepening of economic and trade cooperation between China and countries along the BRI route. However, different business environments among countries have led to the problem of a low and uneven distribution of China’s overall trade and investment efficiency in the countries along the route. Using the stochastic frontier gravity model, this study evaluates the efficiency of China’s outward foreign direct investment (OFDI) based on the data of 47 countries along the Belt and Road route from 2013 to 2019. The empirical results indicate that the efficiency level of China’s OFDI in countries located along the Belt and Road route is 43.39%, which suggests a regional imbalance. In terms of business environment factors, regulatory governance, civic discourse, government accountability, and regulatory quality in host countries have a positive impact on China’s OFDI. The positive effects of the BRI have enabled Chinese enterprises to better face factors such as political instability, corruption and imperfections in the legal system when investing abroad. The findings and suggestions could help the governments and enterprises of the countries along the route improve the business environment in a more targeted manner, enhance the space for economic and trade cooperation, and promote the common development of the countries along the route.

Research on the Potential of China’s Export of Edible Fungus Products to ASEAN

With the rapid development of China’s agriculture, edible fungus products have been highlighted in the trade as it occupies an important position owing to their diverse advantages. The “Belt and Road” initiative and the construction of the “China-ASEAN Free Trade Area” promote the bilateral trade between China and ASEAN, which requires studying the potential of exporting Chinese edible fungus products to ASEAN. Therefore, the current situation and existing problems of the export of fungus products were explored in three dimensions: trade scale, product type, and country structure. The panel data from 9 countries (China and ASEAN countries) from 2003 to 2022 was analyzed using the Stochastic Frontier Gravity Model to investigate factors affecting the export volume and potential of edible fungus products. The spatial value of trade potential was estimated and suggestions were made for Chinese edible fungus products exported to ASEAN.

Unlocking Trade Potential: A Stochastic Frontier Gravity Model Analysis of India-Africa Information and Communication Technology (ICT) Goods Trade

This study examines the relatively unexplored domain of Information and Communication Technology (ICT) trade between India and the African Union (AU), applying the Stochastic Frontier Gravity Model (SFGM) to measure the untapped potential and discern factors that impede trade. It points out India’s burgeoning role in global ICT trade, with the AU being an increasingly valuable market due to its digital growth and young population. The research identifies India’s significant comparative advantage in exporting telecommunication equipment, with a Revealed Comparative Advantage of 3.54, strategically enhancing its position in the global marketplace. The research notes the high trade complementarity index of 0.984 in 2021, indicating a strong synergy between India’s export capabilities and the AU’s demand, suggesting a beneficial trade relationship. It acknowledges the shift in Africa’s ICT import partners, highlighting China’s rising influence and the need for India to solidify its market share in Africa strategically. The SFGM’s application to evaluate trade efficiency, considering factors such as GDP, exchange rate, distance, tariff rate, and language, provides insightful conclusions. Positive impacts of GDP, exchange rate, and shared language on bilateral ICT trade are found to be significant. The findings emphasise the importance of strengthening trade ties for economic development and digital transformation in Africa.

Research on Export Sophistication, Efficiency, and Potential of Agriculture Product Trade between South Korea and RCEP Countries: Based on the Stochastic Frontier Gravity Model

Purpose - This study examines the structure of agricultural export sophistication, export efficiency, and the potential of South Korea’s agricultural products for Regional Comprehensive Economic Partnership (RCEP) countries. Design/Methodology – This study evaluates the agricultural export sophistication of RCEP countries and investigate export sophistication’s effects on the efficiency and potential of South Korea’s agricultural exports to RCEP countries. To this end, we construct a stochastic frontier gravity model (SFGM) based on panel data of agricultural product trade and other factors that impact agricultural imports and exports between South Korea and 36 countries from 2001 to 2020. Using this “one-step method” trade inefficiency model, we evaluate the impact of export sophistication on export efficiency and potential and calculate trade efficiency and potential. Findings – The results reveal a growing trend in the structure of global and RCEP countries’ agricultural export sophistication where the export sophistication of the target countries positively impacts Korea’s agricultural exports to those nations. In addition, RCEP member countries accounted for 50% of the top ten countries in the 2020 trade efficiency ranking, and the average trade efficiency of RCEP member countries show an upward trend. Originality/value - South Korea is geographically close to most RCEP countries, which facilitates agricultural trade. Moreover, there are significant differences in climate conditions and resource endowments between South Korea and most RCEP countries, providing opportunities for expanding agricultural trade with these nations. This study contributes to the extant literature by further exploring the trade efficiency and potential of Korea’s agricultural exports to RCEP countries by considering export sophistication as an important potential factor affecting the competitiveness of Korea’s agricultural exports and analyzing the relationship between the structure of export sophistication and the trade efficiency of Korea’s agricultural product exports to RCEP members.

Topic: Digital Economy, China International Trade Potential, Industries of BRI countries: Evidence from Stochastic Frontier Gravity Model

The article investigates the impact of digital trade on China’s trade efficiency, trade potential, and the possible influence factors of China to BRI nations under stochastic frontier gravity methodology framework. In this article, it follows previous studies and employ stochastic frontier gravity model to explore possible influence of digital trade and trade barriers on China’s foreign trade potential at country-level. It evaluates the influence factor of China export potential to BRI countries via the aspect of digital commerce. Moreover, this article enriches the BRI literatures by employing stochastics frontier gravity model to examine the impact of digital trade on China trade potential and trade efficiency to BRI countries. The results of the study support the important role of BRI in facilitating digital trade among BRI countries and China. In addition to revealing the factors affecting digital trade (e.g., GDP and distance, bordering issue), the results highlight the importance of considering non-efficiency factors, in our case, the negative impact of digital trade restrictions on trade efficiency. The findings may provide some insight for policy makers (in China and BRI countries) into loosening the digital trade restrictions and improve trade efficacy along the BRI.

Bilateral trade potential analysis of the Lanzhou-Kathmandu South Asian rail-road freight trains linking China and Nepal: A stochastic frontier gravity model approach.

In this paper, the stochastic frontier gravity model is applied to analyze the trade potential between China and Nepal and the prospects of Lanzhou-Kathmandu South Asian rail-road freight trains (LKSARFT). Based on the statistical data, we test the Exports Efficiency (EE), Bilateral Trade Efficiency (BTE), Exports Trade Potential (ETP), Bilateral Trade Potential (BTP), Extended Exports Trade Potential (EETP), Extended Bilateral Trade Potential (EBTP), Improved Exports Trade Potential (IETP) and Improved Bilateral Trade Potential (IBTP) between China and Nepal, the following analysis results can be found: for the bilateral trade model, the bilateral non-efficiency factor decreasing at a rate of 0.057 with time increasing, bilateral trade increasing at a rate of 0.057 with time increasing. For the exports model, the exports non-efficiency factor increasing at a rate of 0.004 with time increasing, exports trade decreasing at a rate of 0.057 with time increasing. The BTE between China and Nepal increases when time changes, the EE from China to Nepal remains constant changing during the 18 years. The changing range of BTE is 0.002-0.05; the changing range of EE from China to Nepal is over 0.1, larger than the BTE. The BTE and EE ranking among the eight South Asian countries are ranking fifth and fourth during the 18 years. exports trade resistance from China to Nepal is larger than bilateral trade resistance; The import trade potential from Nepal to China is huge, the focus of bilateral trade between China and Nepal may be changed, there are more goods may be exported from Nepal to China, and China may become trade deficit when trading with Nepal. Then, the development bottlenecks of the LKSARFT are analyzed. Finally, we give policy directions to boost bilateral trade efficiency and tap the potential of bilateral trade between China and Nepal.

Digital Economy, China International Trade Potential, Industries of BRI countries: Evidence from Stochastic Frontier Gravity Model

The article investigates the impact of digital trade on China’s trade efficiency, trade potential, and the possible influence factors of China to BRI nations under stochastic frontier gravity methodology framework. In this article, it follows previous studies and employ stochastic frontier gravity model to explore possible influence of digital trade and trade barriers on China’s foreign trade potential at country-level. It evaluates the influence factor of China export potential to BRI countries via the aspect of digital commerce. Moreover, this article enriches the BRI literatures by employing stochastics frontier gravity model to examine the impact of digital trade on China trade potential and trade efficiency to BRI countries. The results of the study support the important role of BRI in facilitating digital trade among BRI countries and China. In addition to revealing the factors affecting digital trade (e.g., GDP and distance, bordering issue), the results highlight the importance of considering non-efficiency factors, in our case, the negative impact of digital trade restrictions on trade efficiency. The findings may provide some insight for policy makers (in China and BRI countries) into loosening the digital trade restrictions and improve trade efficacy along the BRI.

The characteristic and potential of green trade between China and regional comprehensive economic partnership countries

This paper analyze the characteristics of green trade between China and Regional Comprehensive Economic Partnership (RCEP) countries from 2001 to 2020, and then adopts a stochastic frontier gravity (SFG) model and trade inefficiency (TIE) model to analyze the trade potential and the influencing factors of green trade between China and RCEP countries. The main conclusions are as follows: the green trade value continues to grow, with Japan and South Korea as the main green trade partners. The competitive advantage of Chinese green products and the complementarity of RCEP countries towards Chinese green products are both increasing. Per capita GDP, population of RCEP countries promote the green trade, while the geographical distance hinders green trade. In the item of TIE, governance ability and economic freedom promote the efficiency of green trade, while differences in environmental regulation and tariff rate hinders trade efficiency. At present, China has significant green trade potential with RCEP countries. The efficiency of green trade between China and Japan, South Korea, Singapore, Vietnam, and Australia is relatively low. China should actively tap into the demand for green trade and further develop the potential of green trade.

The Impact of Cultural Distance on Korean Trade: Based on Stochastic Frontier Gravity Model

The Impact of Cultural Distance on Korean Trade: Based on Stochastic Frontier Gravity Model

The Growth Effect and Its Influencing Factors: Empirical Evidence Regarding China’s Fruit and Vegetable Exports to RCEP Countries

Fruit and vegetable products, integral to human nutrition, play a vital role in dietary patterns. Moreover, the Regional Comprehensive Economic Partnership (RCEP) region, a critical market for Chinese fruit and vegetable exports, has observed the growing presence of these Chinese produce groups. The ratification of the RCEP bolsters the liberalization of fruit and vegetable commerce in the region, consequently fostering opportunities for its development. Nonetheless, existing studies have insufficiently addressed fruit and vegetable commerce in the region and its consequent effect on trade expansion. In this context, it is crucial to analyze the trade pattern associated with the swift export growth of fruit and vegetables. This study employs binary marginal analysis and the stochastic frontier gravity model. This study’s findings reveal that, with respect to the growth effect, the expansion of China’s fruit and vegetable exports to RCEP countries in recent years primarily stems from the contribution of the extensive margin. Considering the factors influencing trade, metrics like free trade agreements (FTAs), the extent of trade liberalization, political expenditure levels, government transparency, and liner transport connectivity significantly impact China’s fruit and vegetable exports. Regarding trade efficiency, the current efficiency value of China’s fruit and vegetable exports to RCEP countries is relatively low, characterized by substantial country-specific variations and immense future trade potential. The insights gleaned from this research can offer decision-making support for the collaboration on fruit and vegetable trade between China and the RCEP region.

Analysis on the spatial pattern and evolution of China's petroleum trade under the dual effect of international oil price and “Belt and Road” Framework

“Belt and Road” is the important origin of oil import in China. Based on social network analysis and stochastic frontier gravity model, this paper studied the characteristic evolution and influence factor of oil import network between China and “Belt and Road” countries. Then by constructing a stochastic frontier gravity model including the crude oil future price and oil importing price, it found that the international crude oil future price, the oil importing price, the political situation, the trade agreements have the effects on the China's oil import from “Belt and Road” region. It provided suggestions for improving the spatial pattern of China's petroleum trade.