Modelling Bilateral Sectoral Trade Flows

A Simultaneous‐Equations Model of Trade, Conflict, and Cooperation

“…Since tariff, exchange rate, and transportation cost enter the model as a single variable (ETC), their parameters are naturally restricted to be identical in the estimation. Last, unlike some cross-sectional BT studies where transportation cost is approximated by the distance, this cost is assumed not to change over time so that it does not appear in a time-series model, similarly to Italianer and d'Alcantara (1986). 10 The issue how to measure the level of CC is much debated.…”

“…In our model, Bergstrand's (1985) one-stage decision-making process is replaced by a two-stage decision-making process as in Geraci and Preow (1982), Italianer (1986), Italianer and d'Alcantara (1986), and others. 5 In the first stage, consumers choose between foreign and domestic goods.…”

Bilateral Import, Export, and Conflict/Cooperation Simultaneity

“…The subutility of k's consumers from imports, U k M , is given by a constant elasticity of substitution~CES! function, as in Armington, 1969, andItalianer, 1986. Hence, for k ϭ 4,…”

“…The products consumed in k are Q 1k , Q 2k , Q 3k and Q 4k , with prices P 1k , P 2k , P 3k and P 4k , respectively. As in Italianer, 1986, and others, the utility of consumers is weakly separable between domestic and imported goods. This implies that first consumers allocate expenditure between imports~M k !…”

“…in many studies~e.g., Armington, 1969;Grossman, 1982;Geraci and Prewo, 1982;Bergstrand, 1985;Italianer, 1986;Pollins, 1989aPollins, , 1989bGowa, 1994!. Hence, M k , X j , and the sums of prices in the denominators of Q D and Q S may be taken as exogenous.…”