scholarly journals Gravity and Heterogeneous Trade Cost Elasticities

2021 ◽  
Author(s):  
Natalie Chen ◽  
Dennis Novy
Keyword(s):  
International Trade ◽  
Bilateral Trade ◽  
Trade Agreements ◽  
Gravity Equation ◽  
Trade Costs ◽  
Currency Unions ◽  
Trade Cost ◽  
New Approach ◽  
Substantial Heterogeneity

Abstract How do trade costs affect international trade? This paper offers a new approach. We rely on a flexible gravity equation that predicts variable trade cost elasticities, both across and within country pairs. We apply this framework to popular trade cost variables such as currency unions, trade agreements, and WTO membership. While we estimate that these variables are associated with increased bilateral trade on average, we find substantial heterogeneity. Consistent with the predictions of our framework, trade cost effects are strong for ‘thin’ bilateral relationships characterised by small import shares, and weak or even zero for ‘thick’ relationships.

Die Handelskosten von Deutschland

2010 ◽  
Vol 61 (2) ◽  
Author(s):  
Udo Broll ◽  
Andreas Förster ◽  
Stephan Rudolph
Keyword(s):  
International Economics ◽  
Bilateral Trade ◽  
Geographic Distance ◽  
Equation System ◽  
Gravity Equation ◽  
Trade Costs ◽  
Currency Unions ◽  
Simultaneous System ◽  
Tariff Rates ◽  
Law Of Gravity

SummaryThe gravity equation for international trade is probably the most important tool in international economics to explain and estimate trade flows. In its simplest form, it states that the exports between any two given countries are a multiplicative function of these countries’ economic size, as measured by GDP, and their bilateral trade costs. The idea and the name is going back from the similarity to Isaac Newton’s law of gravity where the attraction force between two physical bodies equals the product of their masses divided by the squared distance between the bodies. The gravity equation in international economics becomes estimable after log-linearizing and parameterizing it. Export and GDP data are broadly available in several databases. Trade costs are not directly measurable and are therefore usually proxied by geographic distance and a set of further proxy variables like: access to the sea, common border, common language, membership in a certain group of countries, membership in a country union, and others. Trade costs proxies can be subdivided into geographical and political variables. Geographical properties of a country can hardly be changed by policy. However policymakers can influence trade costs through tariff rates, currency unions, free trade agreements, membership in certain country groups and many other measures. Since trade costs are not directly measureable, we will use a novel index of comprehensive trade costs to estimate a simultaneous system, first of a gravity equation and second of a trade cost equation for Germany. In our study, we demonstrate a new way to solve the complex equation system of multilateral resistances and compute them for a set of OECD countries.

MEASURING MONGOLIA’S GAINS FROM TRADE AND INCREASED INTEGRATION IN THE WORLD ECONOMY

2019 ◽  
Vol 19 (04) ◽  
pp. 1950021
Author(s):  
ENKHMAA BATTOGTVOR ◽  
CRAIG PARSONS
Keyword(s):  
World Economy ◽  
Bilateral Trade ◽  
Transitional Economies ◽  
Trade Costs ◽  
Trade Cost ◽  
Welfare Impact ◽  
Economic Association ◽  
The World ◽  
Trade Partners ◽  
Tariff Equivalent

Following the gains from variety literature ( Broda and Weinstein , 2006 ), we estimate the welfare impact of the dramatic increase in imported varieties growth in Mongolia and find it to be considerably larger than that found in previous studies of other transitional economies. Our results show that from 1988 to 2015, the gains from variety were equal to 22 percent of Mongolia’s GDP, or 0.8 percent annually. As such, this paper measures the gains of one of the most profound trade liberalizations in modern history. Also, by calculating Novy measures of trade costs, we find that the tariff-equivalent trade costs between any of its trade partners fell dramatically since the dissolution of and Mongolia’s exit from the Soviet-led CMEA (Council of Mutual Economic Association). Our calculations suggest that the costs between Mongolia and China, now its biggest trading partner, fell from 114% to 63%. For reference, this is twice the decline of the post-NAFTA US-Mexico trade costs. Other bilateral trade cost declines (e.g. with Germany) were even greater.

When Do Currency Unions Increase Trade?

2014 ◽  
Vol 14 (1) ◽  
pp. 113-125
Author(s):  
Amr Sadek Hosny
Keyword(s):  
International Trade ◽  
Treatment Effect ◽  
Bilateral Trade ◽  
Previous Literature ◽  
Currency Unions ◽  
Common Currency ◽  
Empirical Fact ◽  
Heterogeneous Effects ◽  
Trade Distribution ◽  
Quantile Treatment Effect

A stylized empirical fact in the international trade literature is that currency unions increase trade. This “Rose effect” suggests that a country pair that shares a common currency will, on average, trade three times as much as countries that don’t. In this paper, I question whether currency unions have heterogeneous effects over the distribution of the trade variable. The motivation is that regressions reported in the previous literature give average effects, while common currencies can affect countries’ trade differently over the trade distribution. I build on the same gravity approach and dataset of Rose (2000) to allow easier comparison with existing literature and employ newly developed quantile treatment effect techniques to study what is happening at different quantiles of the trade distribution. Estimation results suggest significant amounts of heterogeneity in the effect of currency unions on bilateral trade.

scholarly journals Does ICT Development Flatten the Globe? Evidence from International Trade Costs Data

2016 ◽  
Vol 3 (2) ◽  
pp. 39-46
Author(s):  
Moussa Keita
Keyword(s):  
International Trade ◽  
Bilateral Trade ◽  
Random Effect ◽  
Trade Costs ◽  
Gravity Models ◽  
Beneficial Effects ◽  
Extended Gravity ◽  
Variable Approach ◽  
Trading Partners ◽  
The Impact

This study attempts to bring new perspectives on the death of distance hypothesis by examining to what extent the intensification of ICT has contributed to attenuate the effect of distance on international trade issues. Our analysis is based on an extended gravity model constituted of 2827 country pairs observed from 2002 to 2012. The model is estimated by using the Hausman-Taylor instrumental variable approach to deal with specificities of the panel gravity models that cannot be treated in classical fixed-effect or random-effect models. The estimations confirm significant beneficial effects of ICT regarding trade costs reduction. We found that bilateral trade costs are significantly low between countries that have a more densified communication network. And this effect appears to be strongly heterogeneous regarding the distance. In particular, we found that the impact of ICT on trade costs is greater when the distance between the trading partners is more important. We also found that the elasticity of trade costs to distance decreases as the level of ICT increases. These results appear robust to various sensitivity and robustness checks and are consistent with other studies. Finally, the results obtained in this study suggest the existence of strong distance-neutralizing effect of ICT. JEL Classifications Code: F14 ; O33

scholarly journals The Gravity Equation in International Trade

2009 ◽  
Author(s):  
Michele Fratianni
Keyword(s):  
International Trade ◽  
Bilateral Trade ◽  
Gravity Equation ◽  
Trade Flows ◽  
Empirical Success ◽  
Theoretical Support ◽  
Long Time ◽  
Bilateral Trade Flows ◽  
Alternative Hypotheses ◽  
State Of Affairs

This article aims to explain trade flows in terms of the gravity equation (GE). The reason for focusing on GE is twofold. The first is that GE, unlike other frameworks, has had great empirical success in explaining bilateral trade flows. For a long time, however, GE was a child without a father in the sense that it was thought to have no theoretical support. Since the late 1970s, this state of affairs has changed radically. Now, the gravity equation has strong theoretical support and can be derived from a variety of models of international trade. The second is that GE can be used to sort out alternative hypotheses of international trade.

AN ANALYSIS OF THE EU’S INVESTMENT POLICY AFTER CETA: EFFECTS ON THE BULGARIAN ECONOMY

2020 ◽  
Author(s):  
Nikolay Marin ◽  
◽  
Mariya Paskaleva ◽  
Keyword(s):  
Bilateral Trade ◽  
Positive Impact ◽  
Value Added ◽  
Trade Agreement ◽  
Trade Agreements ◽  
Investment Policy ◽  
National Parliaments ◽  
Total Employment ◽  
Investment Protection ◽  
New Generation

In this paper we analyze the changes of the EU’s investment policy provoked by the mixed trade agreements. The EU’s investment policy has turned towards attaining bilateral trade agreements. One of these “new-generation” agreements is the Comprehensive Economic and Trade Agreement (CETA). It is in a process of being ratified by the national parliaments of the EU members. This study is focused on the general characteristics of CETA and the eventual problems posed by its regulatory and wide-ranging nature. We prove that the significance of this agreement pertains not only to the economic influence, that it will have on the European and Canadian economies, but CETA is also the first trade agreement to have been negotiated with a focus on investment protection and a change in the EU’s investment policy. The current study reveals the influence arising from the conclusion of CETA on the Bulgarian economy with an emphasis on electronic industry, machinery industry and manufacturing. We estimate both – the direct and indirect effects on Bulgaria’s exports, imports, value added and employment. In order to estimate the influence, we apply the multi-regional input-output model. It is proved that CETA will have a low but positive impact on the Bulgarian economy. After constructing different scenarios of development, we prove that the influence of CETA on the Bulgarian economy will amount to 0.010% GDP. The average total employment will be increased by more than 172 jobs in Bulgaria, which in turn, relative to the labor market, represents less than 0.01% of the total employment.

Cultural Bias: Gymnasts, Judges, and Bilateral Trade Agreements

2012 ◽  
Author(s):  
Brian P. Callahan ◽  
Sean E. Mulholland ◽  
Kurt W. Rotthoff
Keyword(s):  
Bilateral Trade ◽  
Trade Agreements ◽  
Cultural Bias
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