Searching for the Appropriate Measure of Multilateral Trade-Resistance Terms in the Gravity Model of Bilateral Trade Flows

Abstract

The aim of the paper is to compare different approximations of multilateral trade-resistance in the gravity model and the influence of their use on estimation results for models of EU-trade. Three synthetic variables: for bilateral trade costs, exporter's and importer's remoteness are used as an alternative for including time-varying country effects. Results indicate significant impact of those variables but not wholly compatible with the theory. Estimated coefficients of trade determinants, including Euro's effects, have expected values in both approaches only if the FE estimator is applied.

Trade Agreement as a Model of Development: The Case of the Japan-Philippine Economic Partnership Agreement (JPEPA)

“…The Gravity Model has been used in analyzing bilateral trade ow between countries (see: Duzgun Oncel, B. and Tekce, M., 2014;Drzewoszewska, N., 2014;Reyes, J., Wooster, R., and Shirrell, S., 2014;Hayakawa, K., Kimura, F., and Nabeshima, K., 2014;Ravishankar, G. and Stack M., 2014;Mohmand, Y., Salman, A., Mughal, K., Imram, M., and Makarevic, N., 2015;Kunroo, M. and Azad, N., 2015;Gylfason, T., Martinez-Zarzoso, I., and Wijkman, P. 2015;Kahouli, B. and Maktouf, S., 2015;Papalia, R. and Bertarelli, S., 2015;Khosla, P., 2015;Boxell, L., 2015;Proenca, I., Sperlich, S., and Savasci, D., 2015;Gervais, A., 2015;Egger, P. and Staub, K., 2016;Madah, M. and Nagheli, S., 2016;Cipkute, E., 2016;Bujang, A., 2016;Hndi, B., Maitah, M., and Mustofa, J., 2016). Based on the Gravity Model, higher income countries are drawn toward each other by gravitational pull of their respective size and other push and pull factors.…”

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“…Due to the heterogeneity that occurs by modelling international trade fl ows, the FE estimator is frequently applied while conducting research (Egger, 2000;Green et al, 2001;Cheng, Wall, 2005;Pietrzak, Łapińska, 2014), since it improves the panel model by including fi xed effects for every trading pair in the sample, which can be easily seen on the coordinate system in the plane as a set of parallel multiple regression equations 5 . The use of the FE estimator was also indicated as a better way of the approximation of MTR terms in the author's previous work devoted to the issue of alternative methods of implementing and estimating multilateral trade resistance in the panel gravity model of bilateral trade (Drzewoszewska, 2014). However, this solution ignores the average variation between trading pairs, which Egger (2000) and Cheng, Wall (2005) consider in the context of historical, political and geographical factors.…”

Determinants of Cocoa Bean Trade in the International Market: Gravity Model Approach

“…The Gravity Model is widely used to measure the effects of Regional Trade Agreements (RTAs) on trade flows [18,24,[30][31][32][33][34][35][36][37][38][39][40][41][42]. The gravity model assesses a country's trade flows and is very important in determining a country's export or import potential [9,40].…”

“…Suvannaphakdy and Toyoda [19] using import tariffs as an additional variable in the gravity model. Most studies analyzing the effects of trade use panel data regression to find empirical results [9,34,36,40,[44][45][46][47][48][49][50][51][52][53][54].…”