Asia-Pacific region: empirical analysis of the effects

A study of trade patterns of a number of countries in the Asia-Pacific region, with emphasis on its relations with the Russian Federation with the use of econometric estimates. The main factors affecting the cost of trade flows between countries.

Рубрика Международные отношения и мировая экономика
Вид дипломная работа
Язык английский
Дата добавления 02.10.2016
Размер файла 327,7 K

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Conclusions

Conducted empirical analysis revealed that traditional empirical methods like OLS are not suitable for gravity equation estimations. The reason is that they give inconsistent results in presence of two main challenges associated with trade data: heteroscedasticity and zero (missing or low) export and import flows. Poisson pseudo-maximum likelihood estimator is robust to heteroscedasticity and copes with problem of zero trade flows. The method that was chosen as the most suitable for estimation of our gravity dataset is PPML with population-averaged effects. It is suitable, but not the best as it suffers from drawbacks, described by Silva and Tenreyro (2010), particularly the coefficients cannot be estimated in the case of perfect collinearity.

The initially suggested by Tinbergen (1962) on the base of Newton's gravity law direct dependence of international trade flows on economic sizes of both trading countries expressed in their nominal GDP values and inverse dependence on the distance between trading countries have been proved by results of current paper. Furthermore, this result was also obtained by all researchers who used gravity model to explain bilateral trade flows between countries. Not only geodesic distance between countries' capitals was estimated, but also weighted by population distance, calculated according Head and Mayer's (2002) formula. Consequently, it was found that it suits even better in regressions. And remoteness calculated on the base of weighted distance also fits our models better. By the way, remoteness of reporter from all other countries in the world positively influences international trade flows.

Furthermore, we revealed that geographic characteristics really matter as almost all of them to some extent influence the value of costs of transportation of goods and services abroad. For Russian Federation their effects on trade turnover were analyzed separately. Variables that demonstrate characteristics of geographical bond between countries in the pair are indicators of cultural identity, that influences transportation costs too. They include: common border, common official language. Other variables indicate individual characteristics of countries: area of country reporter, landlockedness of both partner and reporter.

Trade agreements as indicators of integration of country into the observed region also contribute to increase in trade turnovers. Russian Federation economic integration into Asia-Pacific region can be characterized only by preferential trade agreements with Canada and USA.

For further analysis decomposition of export into extensive and intensive margins can be employed as dependent variables as in Hummels and Klenow in order to estimate not only effects of factors on value trade flows, but also understand what is the reason of export growth - the increase in variability of types of product or increase in amount of goods of existing types.

References

1. Anderson, J. and van Wincoop, E. 2003. `Gravity with Gravitas: A Solution to the Border Puzzle', American Economic Review, Vol. 93, pp. 170-192.

2. Anderson, J.E. (2010) `The Gravity Model', Annual Review Economics, Annual Reviews, Vol. 3, No. 1, pp. 133-160.

3. Arvis, J-F. and Shepherd, B. (2011) `The Poisson Quasi-maximum Likelihood Estimator: A Solution of the “Adding Up” problem in gravity models', World Bank, Val. 26, No. 34334

4. Cameron, A.C. and Trivedi, P.K. (2013) `Count Panel Data', Oxford Handbook of Panel Data Econometrics, Oxford University Press.

5. Frankel, J.A. (1997a) `Estimated Effects of Trading Blocks', Regional Trading Blocks in the World Economic System (pp. 77-113), Washington DC: Institute for International Economics.

6. Frankel, J.A. (1997b) `Extensions of the Empirical Analyses', Regional Trading Blocks in the World Economic System (pp. 115-148), Washington DC: Institute for International Economics.

7. Frankel, J.A. (1997c) `Importance of Geographical Proximity in Trade', Regional Trading Blocks in the World Economic System (pp. 35-48), Washington DC: Institute for International Economics.

8. Frankel, J.A. (1997d) `The Gravity Model of Bilateral Trade', Regional Trading Blocks in the World Economic System (pp. 49-76), Institute for International Economics.

9. Gomez-Herrera, E. and Baleix J.M. `Are Estimation Techniques Neutral to Estimate Gravity Equations? An Application to the Impact of EMU on third countries' exports'

10. Gomez-Herrera, E. (2013) `Comparing Alternative Methods to Estimate Gravity Models of Bilateral Trade', Empirical Economics Vol. 44, No. 3, pp. 1087-1111.

11. Hummels, D. and Klenow P.J. `The Variety and Quality of a Nation's Exports'

12. Hummels, D. L. (1999) `Toward Geography of Trade Costs', Working paper, Chicago: University of Chicago)

13. Khosla, P. (2015) `Intra-regional trade in Africa and the impact of Chinese intervention: a gravity model approach', Journal of Economic Development, Vol. 40, No. 4, pp. 41-66.

14. Martin, W. and Pham, C.S. (2008) `Estimating the Gravity Model When Zero Trade Flows are Frequent', Melbourne: Economic series 2008_03, Deakin University

15. Melitz J., Toubal F. (2014) `Native Language, Spoken Language, Translation and Trade', Journal on International Economics, Vol. 93, pp. 351-363.

16. Proenca, I. et al. (2015) `Semi-mixed Effects Gravity Models for Bilateral trade', Empirical Economics, Vol. 48, pp. 361-387.

17. Rose, A.K. (2002) `Estimating Protectionism through Residuals from the Gravity Model', Berkley: University of California

18. Siliverstovs, B. and Schumacher, D. (2009) `Estimating Gravity Equations: to log or not to log?', Empirical Economics, Vol. 36, No. 3, pp. 645-669.

19. Silva, S. (2011) `Poisson: Some Convergence Issues', The Stata Journal, Vol.11, No.2, pp. 207-212.

20. Silva, S. and Tenreyro, S. (2010) `On the Existence of the Maximum Likelihood estimates in Poisson Regression', Economic Letters, Vol. 107, No. 2, pp. 67-89.

21. Silva, S. and Tenreyro, S. (2006) `The Log of Gravity', The Review of Economics and Statistics, Vol. 88, No. 4, pp. 641-658.

22. Tinbergen, J. (1962) `Shaping the World Economy: Suggestions for an International Economic Policy'. New York: Twentieth Century Fund.

Appendixes

Appendix A. Country list.

Appendix B. List of variables

Appendix C. Tests for heteroscedasticity of data.

Appendix D. Descriptive statistics for binary data

1 Continents

2 Common continents

America

Asia

Pacific

3 Contiguity

4 Common official language

5 Colonial Bonds

6 Have ever been the same country

8 Agreements

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