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Gravity model by panel data approach: empirical evidence from Nigeria

Author

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  • Shehu U.R. Aliyu
  • Sani Bawa

Abstract

Gravity trade model continues to be coveted for analysis of determinants of trade flows despite its lack of theoretical foundations. The main aim of the paper is to assess the determinants of the flow of Nigeria's exports using longitudinal data from 1999 to 2012. Extrapolating from the empirical literature, the paper constructs Nigeria's gravity trade model comprising nine EU countries, BRICS countries, Canada, Japan and the USA. Results from POOL and panel regressions - fixed and random effects show that market size and price index of destination countries positively drive trade flows in Nigeria, while relative factor endowment, economic similarities and geographical distance negatively affect Nigeria's trade flows. Furthermore, the paper found evidence in support of positive trade flows with the EU countries and negative trade flows with the BRICS countries and on account of cultural differences. Findings show that Nigeria's exports follow Linder hypothesis. These have important implications for economic, socio-cultural and bilateral trade negotiations for better trade performance in Nigeria in the future.

Suggested Citation

  • 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.
    • Handle: RePEc:ids:ijtrgm:v:8:y:2015:i:1:p:42-57
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    More about this item

    Keywords

    gravity trade model; trade flows; panel data; Linder hypothesis; relative factor endowment; economic blocs; Nigeria; exports; export flows; cultural differences; culture; trade negotiations; trade performance.;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • L88 - Industrial Organization - - Industry Studies: Services - - - Government Policy

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