New algorithm for applying gravity models to estimate the impact of tariffs and non-tariff barriers reduction on import growth from Israel to Russia

The article presents results of estimation the impact of tariffs and non-tariff barriers reduction on import growth from Israel to Russia. In order to obtain such estimates author have developed two-stages approach with the assumption that import elasticity from Israel to Russia is equal to mean of import elasticity from Israel to 224 countries of the world. In the first stage of the approach, criteria for selection of the most potentially interesting industrial products at the level of 6-digits of the Harmonized System 2012 are developed. In the second stage, regression coefficients of tariffs, non- tariff measures and other factors of gravity models were estimated. Three versions of gravity models were used for estimations: ordinary least squares regression, Poisson regression and Heckman two-stage approach. Estimates of gravity models with the best statistic coefficients were chosen for each product previously selected in the first stage of algorithm. Then, ad-valorem equivalents of non-tariff measures were calculated. More than 9,000 observations were analyzed for each factor in the models.