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Examining the trade potential of the UAE using a gravity model and a Poisson pseudo maximum likelihood estimator

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  • Dimitrios Dadakas
  • Salim Ghazvini Kor
  • Scott Fargher

Abstract

When the United Arab Emirates (UAE) started exporting oil in 1962, it leveraged off the country's economy to emerge as one of the world's fastest-growing nations. Recently, however, worries about the vulnerability of the economy from shocks in international oil prices have effectuated a rapid transformation based on production and trade diversification. Trade agreements and liberalization policies turned the country into a regional trade hub. Given the recent changes in the economy's structure and the importance of trade for the UAE economy, we examine opportunities for the country to further expand trade. We use a gravity equation on 2002–2016 panel data and a Poisson pseudo maximum likelihood estimator to examine the determinants of trade and the trade potential. We compare the results obtained from a theory-consistent econometric approach for the estimation of gravity with the results obtained from past ‘intuitive’ approaches to gravity estimation and infer on the bias present. Results reveal that the UAE has exhausted trade potential with some of its major trading partners including many member countries of the GCC and PAFTA. However, potential for trade expansion exists with many other countries, including Japan and India that could dictate future policy efforts for trade expansion.

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  • Dimitrios Dadakas & Salim Ghazvini Kor & Scott Fargher, 2020. "Examining the trade potential of the UAE using a gravity model and a Poisson pseudo maximum likelihood estimator," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 29(5), pages 619-646, July.
    • Handle: RePEc:taf:jitecd:v:29:y:2020:i:5:p:619-646
    DOI: 10.1080/09638199.2019.1710551
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    Cited by:

    1. Enkang Li & Mengqiu Lu & Yu Chen, 2020. "Analysis of China’s Importance in “Belt and Road Initiative” Trade Based on a Gravity Model," Sustainability, MDPI, vol. 12(17), pages 1-21, August.
    2. Eegunjobi, Ruth, 2023. "Seafood Export Performance Effects of Industrial Upgrading: Evidence from Namibia’s Industrial Policy," African Journal of Economic Review, African Journal of Economic Review, vol. 11(4), September.
    3. Nazir Muhammad Abdullahi & Xuexi Huo & Qiangqiang Zhang & Aminah Bolanle Azeez, 2021. "Determinants and Potential of Agri-Food Trade Using the Stochastic Frontier Gravity Model: Empirical Evidence From Nigeria," SAGE Open, , vol. 11(4), pages 21582440211, December.
    4. Shikha Gupta & Nand Kumar, 2021. "Three decades of narrow globalization: Evaluating India's exports between 1991 and 2017," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(2), pages 343-359, March.
    5. João Gilberto Mendes dos Reis & Pedro Sanches Amorim & José António Sarsfield Pereira Cabral & Rodrigo Carlo Toloi, 2020. "The Impact of Logistics Performance on Argentina, Brazil, and the US Soybean Exports from 2012 to 2018: A Gravity Model Approach," Agriculture, MDPI, vol. 10(8), pages 1-21, August.
    6. Nuno Carlos Leitão, 2023. "The Impact of Geopolitical Risk on Portuguese Exports," Economies, MDPI, vol. 11(12), pages 1-17, November.
    7. Anna Golovko & Hasan Sahin, 2021. "Analysis of international trade integration of Eurasian countries: gravity model approach," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 11(3), pages 519-548, September.

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