CARICOM Bilateral Trade: A Preliminary Analysis Using the Gravity Model (original) (raw)
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Purpose: This study analyses the international trade among members of the Organisation of Islamic Cooperation (OIC) and documents the significant contributing factors. Methodology: Our sample includes 49 OIC-members (located from Southeast Asia to South America). The extended gravity model of international trade is applied to identify the determinants of intra-OIC region trade on the recent five years data (2014-18), at the time research conducted. Exports are used as proxy for the international trade between a pair of trading partners. Findings: Evidence supports the application of the basic gravity model in explaining trade variations within the OIC region. GDP contributes positively while distancing negatively. Common language contributes positively to trade flows. Shared borders and Inflation (importer and exporter) turned insignificant. Trade volume among OIC member countries is less than potential. Recommendations: OIC economies need to focus on growth through the production of value-added commodities-leading to an increase in international trade. Furthermore, surplus capital within the region may be shifted to economies with scarce capital. Significance: To the best of author's knowledge, this is the only effort to present a comprehensive analysis of international trade within the OICregion through the application of the gravity model in recent years.
International trade has increasingly become a keystone of economic prosperity in many countries of the world. Ethiopia is the one which benefit from foreign trade. Therefore, the main focus of this paper is to identify factors influencing bilateral trade between Ethiopia and its major trading partners'. The gravity model of trade was employ for the purpose. A gravity model based on a panel data for the period of 10 years (2000-2009) of sample countries was estimated by fixed effect estimators. The coefficients obtained are then used to predict the basic total trade and export trade potentials for Ethiopia. As a result, we found that the total trade flow was determine by mass (economic size) of the importing and exporting countries, real bilateral exchange rate, FDI of Ethiopia, weighted distance and bordering between Ethiopia and the major trading parents. Ethiopia's export performance to those major trading countries' are also determine by GDP of the importing countries, GDP of the exporting country, the weighted distance. The results of this study indicate that a depreciation of the real exchange rate would affect the international competitiveness of Ethiopian exports, therefore, we recommends Depreciation of a country's real exchange rate because it will cause a gain in competitiveness of that country and government needs also to pay adequate attention to destination markets with cheaper transport costs.
EuroEconomica, 2011
World trade has grown rapidly. Several factors are highlighted by literature as the driving forces behind the growth of world trade. Reductions in barriers to trade are one of them. A comprehensive empirical investigation is carried to ascertain the trade reducing and increasing effect of barriers to trade and facilitators to trade. The new version of gravity model is developed in the connections in this study while analyzing the effect of GDP, distance, remittances, FDI, transportation cost, exchange rate, inflation, population, import and export of specifically trading partners on trade flows during bilateral trade. The study revealed that the developed version of gravity model explains the trade flows substantially and vigorously for the nations from developed world than for the nations from developing world.
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Due to the relatively low levels of bilateral trade flows observed within the CEMAC bloc as well as the poor rates of economic growth observed in CEMAC member States, the study aimed to examine the determinants of bilateral trade flows within the CEMAC bloc using the Augmented Gravity model as the main theoretical framework. While secondary data for bilateral trade was obtained from IMF's Direction of Trade Statistics, secondary data for Gross Domestic Product (GDP), population size and investment in fixed capital were obtained from the World Bank's World Development Indicators and data for distance and CEMAC dummy were obtained from the Institute for Research on the International Economy (CEPII). Using the Pseudo-Poisson Maximum Likelihood (PPML) technique, the results of the study conclude that while GDP of exporting country, GDP of importing country, the existence of a border between exporting country and importing country, population of exporting country, population of importing country, physical capital of exporting country and physical capital of importing country all have positive and significant impact on bilateral trade flows within the CEMAC bloc, distance between exporting country and importing country and the creation of CEMAC as a trade bloc all have negative and significant impact on bilateral trade flows within the CEMAC bloc. Finally, the study recommends that policy makers of the CEMAC trade bloc design and implement policies and measures that are geared towards boosting the GDP of member States, investing in national and regional infrastructural projects, eradicating barriers at their respective borders, investing in the acquisition and transfer of technical and technological skills, harmonizing regional financial, economic, legal and trade policies and improving the business (investment) climate.
Augmented gravity model: An empirical application to Mercosur-European Union trade flows
Journal of applied …, 2003
This paper applies the gravity trade model to assess Mercosur-European Union trade, and trade potential following the agreements reached recently between both trade blocs. The model is tested for a sample of 20 countries, the four formal members of Mercosur plus Chile and the fifteen members of the European Union. A panel data analysis is used to disentangle the time invariant country-specific effects and to capture the relationships between the relevant variables over time. We find that the fixed effect model is to be preferred to the random effects gravity model. Furthermore, a number of variables, namely, infrastructure, income differences and exchange rates added to the standard gravity equation, are found to be important determinants of bilateral trade flows. JEL classification codes: F14, F15
Determinants of Trade Costs: An Application of Gravity Model for ECOWAS Countries
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The main objective of this research is to analyze and evaluate the main trade facilitation factors that affect total trade cost and manufactured trade cost in ECOWAS countries. To cope with these objectives, we adopt an econometric approach of gravity model. The data cover the ECOWAS with their main trade partners from 2010 to 2014. We use panel data econometrics to estimation our model. For that, random effect (RE), fixed effect (FE) and Poisson Pseudo-Maximum Likelihood (PPML) estimators are mobilized. The main result is that total trade cost and manufactured trade cost are both influenced by traditional gravity model variables and Doing Business (DB) indicators. Most importantly, trade costs in ECOWAS countries are more impacted by customs environment.
Rethinking the Gravity Model of International Trade - How distance impacts trade flows. Evidence from African trade., 2018
What is the effect of distance on international trade flows? The gravity model of international trade suggests that flows decrease as distance increases. We introduce three additional models to keep into account also (1) the similarities between trading countries, (2) the quality of infrastructures, and (3) both these factors at the same time. The four models are than tested on the trade flows between 44 African countries and 173 trade partners over a 15-year period via 3 different estimation methods. We show that, regardless of the estimation method, in the newly introduced models the role of distance is substantially reduced.
A Gravity Model Analysis for Trade between Cameroon and Twenty-Eight European Union Countries
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The purpose of this empirical analysis is to investigate, based on gravity model, Cameroon's bilateral trade flows with Twenty-Eight European Union countries signatories of the EU-Cameroon Free Trade Agreement (FTA) on the 15 th of January 2009. Though the said Agreement entry into force day was scheduled for the 4 th of August 2014, it is important to analyze the trade trends among these 29 countries. The research findings reveal that Cameroon's bilateral trade with European Union countries is affected positively by economic size and per capita GDP, and influenced negatively by the distance between the trading partners. The result of basic the gravity model reveals that the Product of two countries' GDPs has positive and significant impact on bilateral trade, indeed, a 1 percent point increase in product of the GDPs leads to increase in the bilateral trade volume of Cameroon with the concerned trade partners by 1.2808 percent and about the distance factor, 1 percent point increase in distance leads to decrease the bilateral trade volume of Cameroon by 2.0306 percent.