Gravity's Rainbow: A dynamic latent space model for the world trade network

2013 ◽  
Vol 1 (1) ◽  
pp. 95-118 ◽  
Author(s):  
MICHAEL D. WARD ◽  
JOHN S. AHLQUIST ◽  
ARTURAS ROZENAS
Keyword(s):  
International Trade ◽  
Gravity Model ◽  
Bilateral Trade ◽  
Directed Graphs ◽  
Gravity Models ◽  
Model Specification ◽  
Trade Data ◽  
Latent Space ◽  
Out Of Sample ◽  
The Usa

AbstractThe gravity model, long the empirical workhorse for modeling international trade, ignores network dependencies in bilateral trade data, instead assuming that dyadic trade is independent, conditional on a hierarchy of covariates over country, time, and dyad. We argue that there are theoretical as well as empirical reasons to expect network dependencies in international trade. Consequently, standard gravity models are empirically inadequate. We combine a gravity model specification with “latent space” networks to develop a dynamic mixture model for real-valued directed graphs. The model simultaneously incorporates network dependencies in both trade incidence and trade volumes. We estimate this model using bilateral trade data from 1990 to 2008. The model substantially outperforms standard accounts in terms of both in- and out-of-sample predictive heuristics. We illustrate the model's usefulness by tracking trading propensities between the USA and China.

Gravity models in international trade analysis: testing the country similarity theory 50 years

2020 ◽  
pp. 52-62
Author(s):  
I.S. Smirnov
Keyword(s):  
Developing Countries ◽  
International Trade ◽  
Gravity Model ◽  
Similarity Theory ◽  
Market Competition ◽  
Gravity Models ◽  
Trade Data ◽  
Trade Relations ◽  
Similarity Factor ◽  
The Impact

The article assessed the potential use of gravity models to test the impact of various socio-geographical factors on international and inter-regional trade. The potential of gravitational modeling was estimated based on testing the theory of Linder’s Country similarity theory on recent trade data. This theory was one of the key theories of international trade in the post-war period. The classical gravity model of international trade can be used to test the change in the importance of the country similarity factor over a certain time period. The gravity model will demonstrate more significant results compared to its classical version (excluding the country similarity factor) in the case of a positive effect of the similarity factor on the volume of bilateral trade between countries. The analysis of recent trade data allowed us to assess the extent of change in the country similarity factor over the past 70 years. This period was accompanied by high growth in international trade, as well as the involvement of developing countries in the international division of labor. Vigorous market competition for the production of industrial goods led to the fact that manufacturers were forced to cut costs by moving their main production capacities to developing countries, which significantly differ from them in their level of economic development. The country similarity factor has lost its significance in this new system of international trade relations. As a result, at present the country similarity factor is not a key factor explaining the volume of trade relations between different countries.

Currency Manipulations and Bilateral Trade Between China and the USA

2017 ◽  
Vol 52 (3) ◽  
pp. 171-184 ◽  
Author(s):  
Masoud Moghaddam ◽  
Jie Duan
Keyword(s):  
Exchange Rate ◽  
Gravity Model ◽  
Bilateral Trade ◽  
Trade Deficit ◽  
The Us ◽  
Spot Exchange Rate ◽  
Main Culprit ◽  
Long Time ◽  
The Usa ◽  
Strong Relation

The US trade deficit with China has existed for a long time, and its dollar value has been on the rise recently. It is widely believed that the main culprit is the manipulated value of Renminbi relative to the US dollar. Towards that end, this article re-examines the spot exchange rate and bilateral trade nexus using the Fourier approximation and a variant of the well-known gravity model during the sample period 1993: q1–2014: q1. Although China’s exports to the US Granger cause the exchange rate in a co-integrated space, the findings of a vector error correction model indicate that there is not a strong relation between the two. Indeed, within the aforementioned sample, only 15.52 per cent of changes in China’s exports to the USA are attributable to changes in the spot exchange rate. This is noticeably much smaller than impacts of the other variables utilized in the estimated gravity model. As such, the palpable trade imbalance between the USA and China cannot be single-handedly blamed on the spot exchange rate manipulations.

scholarly journals The Effect of Corruption on International Trade: A Case Study of Indonesian Trade to Nine Countries

2018 ◽  
Vol 13 (1) ◽  
Author(s):  
Danang Ibnu Atsir ◽  
Sunaryati Sunaryati
Keyword(s):  
International Trade ◽  
Maximum Likelihood ◽  
Gravity Model ◽  
Bilateral Trade ◽  
Panel Data Analysis ◽  
Random Effect ◽  
Likelihood Method ◽  
Geographical Distance ◽  
Pseudo Maximum Likelihood

Corruption is a form of abuse of ethical authority by public officials, which is divided into two parts: bribery and forced collection. The effect of corruption like bribes and illegal levies is widespread in the public sector. One interesting investigation is the effect of corruption on international trade. Corruption becomes a barrier in international trade, where corruption plays a role in the access of trade goods and services from within and abroad. Using the gravity model, the focus of this research was the effect of corruption on international trade by taking a case study of Indonesia’s bilateral trade with its nine largest export destination countries. Using panel data, analysis tools used in this research were common effect, fixed effect, random effect and poisson pseudo maximum likelihood (PPML). In this research, it was found that geographical distance variable in its fixed units caused the omitted variable so that the error term correlated with independent variables. In order to overcome the problem, poisson pseudo maximum likelihood method was used in performing regression gravity model with linear log form, so the omitted variable issue on the geographical distance can be eliminated. The results of this research concluded that corruption played a role in international trade through bureaucratic mechanisms of trade and investment licensing and the effect of corruption was more detrimental to exporters.Keywords:   Gravity Model, Corruption, International Trade, Poisson Pseudo Maximum Likelihood (PPML).

scholarly journals International trade and endogenous standards: the case of GMO regulations

2012 ◽  
Vol 11 (3) ◽  
pp. 415-437 ◽  
Author(s):  
MAURO VIGANI ◽  
VALENTINA RAIMONDI ◽  
ALESSANDRO OLPER
Keyword(s):  
International Trade ◽  
Gravity Model ◽  
Bilateral Trade ◽  
Composite Index ◽  
Trade Flows ◽  
Agricultural Products ◽  
Approval Process ◽  
Bilateral Trade Flows ◽  
Gmo Regulation ◽  
Bilateral Differences

AbstractThis paper quantifies the effect of GMO regulation on bilateral trade flows of agricultural products. We develop a composite index of GMO regulations and using a gravity model we show that bilateral differences in GMO regulation negatively affect trade flows. This effect is especially driven by labeling, approval process, and traceability. Our results are robust to the endogeneity of GMO standards to trade flows.

scholarly journals Gravity model and Pakistan - China Trade

2021 ◽  
Vol 258 ◽  
pp. 06036
Author(s):  
Alexander Okhotnikov ◽  
Muhammad Imtiaz Subhani ◽  
Shatila Khodor ◽  
Denis Ushakov
Keyword(s):  
International Trade ◽  
Gravity Model ◽  
Bilateral Trade ◽  
Trade Deficit ◽  
Policy Changes ◽  
New Paradigm ◽  
Past Performance ◽  
Explanatory Variables ◽  
China Trade ◽  
Export Volume

Pakistan being an important ally of the war against terror paying huge price of not merely of innocent lives of people but huge monetary losses in many sectors of economy, one lucrative sector is international trade. Pakistan’s export potential has undergone strenuous pressures to perform according to the past performance. There was a need to reveal new export potential and lucrative sectors of economy with recommended policy changes so that new paradigm change in international trade can be initiated. This empirical study carried to meet the objective in which gravity model is used for investigating the bilateral trade between Pakistan and China. This model is being used extensively by the researchers worldwide to make predictions about volume of international trade to suggest the policy changes in international trade management. The findings confirm that the tariff rates significantly and negatively affects the Export Volume from Pakistan to China as t-stats > 1.5 which results the trade deficit to be increased, while the affinity (i.e. bilateral visits of people of Pakistan and China to each other countries, bilateral dialogues between China and Pakistan, Social integrations programs between China and Pakistan etc.) between China and Pakistan and Geography (i.e. the trading countries are both in Asia with the connected borders) significantly and positively affects the Export Volume from Pakistan to China as t-stats > 1.5, thus the trade deficit is reduced due to stated affinity and geography. The large value of F-stats also reports that the relationships of export volume from Pakistan to China with all outlined stated explanatory variables/ predictors (i.e. the gravity model for bilateral trade between Pakistan and China) will remain alive for longer period of time in future.

scholarly journals Are Economic Distance and Geographic Remoteness Important in Sustainable Trade? Evidence from the Bilateral Trade between China and Kazakhstan

2019 ◽  
Vol 11 (21) ◽  
pp. 6068 ◽  
Author(s):  
Daeheon Choi ◽  
Chune Young Chung ◽  
Jason Young
Keyword(s):  
Gravity Model ◽  
Bilateral Trade ◽  
Gravity Models ◽  
Spatial Effects ◽  
Extended Gravity ◽  
Economic Distance ◽  
Trading Partners ◽  
Geographic Remoteness ◽  
Sustainable Trade ◽  
Unobservable Factors

In this study, we investigate sustainable trade between China and Kazakhstan using the gravity model. We find that the distance between the importer and exporter relative to the distance to other trading partners, rather than the absolute distance, significantly negatively impacts trade volumes. Other factors, such as the structure and availability of free trade zones and unobservable factors related to the characteristics of the checkpoints, also affect trade volumes. To obtain these results, we derive an extended gravity model that considers spatial effects and specific features of the trade between China and Kazakhstan. Thus, we contribute to the fundamental foundations of gravity models.

scholarly journals International Trade and Income Differences

2010 ◽  
Vol 100 (5) ◽  
pp. 2093-2124 ◽  
Author(s):  
Michael E Waugh
Keyword(s):  
International Trade ◽  
Gravity Model ◽  
Total Factor Productivity ◽  
Bilateral Trade ◽  
Factor Productivity ◽  
Income Differences ◽  
Poor Countries ◽  
Standards Of Living ◽  
Trade Frictions ◽  
Rich Countries

I develop a novel view of the trade frictions between rich and poor countries by arguing that to reconcile bilateral trade volumes and price data within a standard gravity model, the trade frictions between rich and poor countries must be systematically asymmetric, with poor countries facing higher costs to export relative to rich countries. I provide a method to model these asymmetries and demonstrate the merits of my approach relative to alternatives in the trade literature. I then argue that these trade frictions are quantitatively important to understanding the large differences in standards of living and total factor productivity across countries. (JEL F11, F13, F14, O19)

scholarly journals Determining the economic impact of cryptocurrency adoption on international trade from a gravity model framework

2021 ◽  
Author(s):  
Eric R. Chen
Keyword(s):  
International Trade ◽  
Gravity Model ◽  
Global Economy ◽  
Bilateral Trade ◽  
Trade Flows ◽  
Regression Analyses ◽  
Model Framework ◽  
Aggregated Data ◽  
Weak Institutions ◽  
Bilateral Trade Flows

As cryptocurrencies develop and circulate at greater rates, countries have appeared to consider the technology as an adoptable medium of exchange. By expanding the influence of cryptocurrencies through adoption, countries raise its impact on the global economy. This paper is the first to apply an augmented version of the gravity model to examine the effects of global cryptocurrency adoption on international trade. This empirical study involves aggregating datasets on U.S. bilateral trade flows, gravity variable statistics, and the adoption of cryptocurrencies. In application of the gravity model, regression analyses are used on the aggregated data to test the magnitude of cryptocurrencies’ impact on trade. Based on the overall findings, the variables for cryptocurrency adoption produce negative coefficients suggesting a negative correlation between the adoption of cryptocurrencies and international trade. The central tendency in the empirical evidence offers the interpretation that countries with weak institutions to promote trade are more likely to adopt cryptocurrencies resulting in a negative association between cryptocurrency adoption and trade.

A Stochastic Analysis of Vietnam Bilateral Trade Efficiency

2018 ◽  
pp. 50-64
Author(s):  
Bao Dinh Ho ◽  
Minh Van Pham ◽  
Thai Vinh Pham ◽  
Hieu Nhu Truong
Keyword(s):  
Gravity Model ◽  
Stochastic Analysis ◽  
Bilateral Trade ◽  
Stochastic Frontier ◽  
Trade Data ◽  
Empirical Results ◽  
Trade Performance ◽  
Trade Potential ◽  
The Impact ◽  
Potential Level

This paper used a stochastic frontier gravity model to evaluate the bilateral trade efficiency of Vietnam using the bilateral trade data of Vietnam’s main trade counterparts in the period 2000- 2015. Trade efficiency means the actual trade in comparison with the trade potential. Empirical results show that Vietnam’s trade performance was significantly lower than the potential level. Joining the WTO did not improve trade efficiency. The impact of FTAs on exploiting bilateral trade potential is heterogeneous across counterparts.

From Economic Competition to Military Combat

2015 ◽  
Vol 61 (7) ◽  
pp. 1510-1536 ◽  
Author(s):  
J. Tyson Chatagnier ◽  
Kerim Can Kavaklı
Keyword(s):  
International Trade ◽  
Economic System ◽  
Bilateral Trade ◽  
Critical Role ◽  
Strong Relationship ◽  
Global Market ◽  
Economic Competition ◽  
Trade Data ◽  
Military Conflict

The vast majority of the extant literature on trade and conflict focuses on bilateral trade to determine whether commerce has a pacifying effect upon pairs of states. We argue that this focus neglects a critical role of international trade: creating tension between states that sell similar goods to the global market. We consider this role explicitly and operationalize its effects empirically. Using commodity-level trade data from 1962 to 2000, we show that countries that produce and sell similar goods are generally more likely to fight, even after we take into account their bilateral trade ties and institutional membership in the global economic system. Our findings are robust to numerous alternative specifications and suggest a strong relationship between economic competition in the global market and military conflict between states.

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