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Can Gravity Model Explain BIMSTEC’s Trade?

Author

Listed:
  • Kabir, Mahfuz

    (Bangladesh Institute of International and Strategic Studies)

  • Salim, Ruhul

    (Curtin University of Technology)

Abstract

This paper examines the trading pattern of Bay of Bengal Initiative for Multi- Sectoral Technical and Economic Cooperation (BIMSTEC) by employing an augmented gravity model. The econometric specification followed Egger (2000, 2002), Baltagi et al. (2003) and Serlenga and Shin (2007). Diagnostic checks imply the presence of serial correlation, heteroscedasticity and contemporaneous correlation in both import and export panels, which are allowed for in the Prais- Winsten regression with panel-specific AR(1). Regression estimates show that BIMSTEC’s imports follow the Linder hypothesis, while the exports exhibit Heckscher-Ohlin-Samuelson prototype. Results also suggest that distance elasticity is negative and significant. Real depreciation is import-reducing and export enhancing. Common language and bilateral trade agreement are found to be import and export enhancing, respectively. Governance of both local and destination countries impact trade of the bloc positively. Finally, belonging to the bloc accounts for about 29% of its exports, which is an indication of good prospect if trade policies are liberalised within the bloc. Thus, gravity model can successfully explain the pattern of the bloc’s trade.

Suggested Citation

  • Kabir, Mahfuz & Salim, Ruhul, 2010. "Can Gravity Model Explain BIMSTEC’s Trade?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 25, pages 144-166.
    • Handle: RePEc:ris:integr:0500
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    Citations

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    Cited by:

    1. Deluna, Roperto Jr, 2013. "Trade Performance and Potential of the Philippines: An Application of Stochastic Frontier Gravity Model," MPRA Paper 51677, University Library of Munich, Germany.
    2. Tripathi, Sabyasachi & Leitão, Nuno Carlos, 2013. "India’s Trade and Gravity Model: A Static and Dynamic Panel Data," MPRA Paper 45502, University Library of Munich, Germany.
    3. A Salim, Ruhu & Mahfuz Kabir, Mohammad, 2011. "Does More Trade Potential Remain in Arab States of the Gulf ?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 26, pages 217-243.
    4. Muhammad Siddique & Muhammad Abdul Quddus & Asim Iqbal, 2022. "Pakistan’s Global Trade Potential with Selected Trading Partners: A Gravity Model Approach Using Static and Dynamic Panel Data," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 4(1), pages 25-37, March.
    5. Saba GULNAZ & Hemlata MANGLANI, 2022. "Does gravity work in the context of India and ASEAN bilateral trade? An application of the FGLS method," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(630), S), pages 143-160, Spring.
    6. Shehu U.R. Aliyu & Sani Bawa, 2015. "Gravity model by panel data approach: empirical evidence from Nigeria," International Journal of Trade and Global Markets, Inderscience Enterprises Ltd, vol. 8(1), pages 42-57.
    7. Shahriar Kabir & Ruhul Salim, 2016. "Can A Common Currency Induce Intra-Regional Trade? The Southeast Asian Perspective," Review of Urban & Regional Development Studies, Wiley Blackwell, vol. 28(3), pages 218-234, November.
    8. Salahuddin & Javed Iqbal & Misbah Nosheen, 2020. "Economic & Cultural Distance & Regional Integration: Evidence from Gravity Model Using Disaggregated Data for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(2), pages 243-274.
    9. Faraji Dizaji, Sajjad & Jariani, Farzaneh & Najarzadeh, Reza, 2018. "Impact of sanctions on bilateral trade of agricultural products between Iran and MENA region and the EU countries," MPRA Paper 89438, University Library of Munich, Germany.
    10. Suresh K G & Neeraj Aswal, 2014. "Determinants of India's Manufactured Exports to South and North: A Gravity Model Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 4(1), pages 144-151.
    11. Kouty Manfred, 2018. "Trading Costs in Africa: Does International Supply Chain Connectivity Matter?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 43(2), pages 85-102, June.
    12. Kaitibie Simeon & Haq Munshi Masudul & Rakotoarisoa Manitra A., 2017. "Analysis of Food Imports in a Highly Import Dependent Economy," Review of Middle East Economics and Finance, De Gruyter, vol. 13(2), pages 1-12, August.
    13. Deluna, Roperto Jr & Cruz, Edgardo, 2014. "Philippine Export Efficiency and Potential: An Application of Stochastic Frontier Gravity Model," MPRA Paper 53580, University Library of Munich, Germany.
    14. Shahriar Kabir & Harry Bloch & Ruhul A Salim, 2018. "Global Financial Crisis And Southeast Asian Trade Performance: Empirical Evidence," Review of Urban & Regional Development Studies, Wiley Blackwell, vol. 30(2), pages 114-144, July.

    More about this item

    Keywords

    gravity model; contemporaneous correlation; Linder hypothesis; relative factor endowment; economic bloc;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration

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