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Can Gravity Model Explain BIMSTEC’s Trade?


  • Kabir, Mahfuz

    () (Bangladesh Institute of International and Strategic Studies)

  • Salim, Ruhul

    () (Curtin University of Technology)


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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    References listed on IDEAS

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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. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.

    More about this item


    gravity model; contemporaneous correlation; Linder hypothesis; relative factor endowment; economic bloc;

    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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