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Stochastic varying coefficients gravity model: An application in trade analysis

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  • K. Kalirajan

Abstract

In international trade analysis between countries, the central theme is the examination of whether or not there are any significant diff erences between the actual trade and potential trade, given the determinants of trade flows. Thus, estimating the potential trade is an important component in trade analysis. The objective of this paper is to suggest a methodology to estimate the potential trade flows between countries, using the gravity model, which has been established in the literature as the most successful empirical trade flow equation, usually producing a good fit. The application of the method has been demonstrated using trade flows between Australia and its trading partners in the Indian Ocean Rim.

Suggested Citation

  • K. Kalirajan, 1999. "Stochastic varying coefficients gravity model: An application in trade analysis," Journal of Applied Statistics, Taylor & Francis Journals, vol. 26(2), pages 185-193.
  • Handle: RePEc:taf:japsta:v:26:y:1999:i:2:p:185-193 DOI: 10.1080/02664769922520
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    References listed on IDEAS

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    1. Drysdale, Peter & Garnaut, Ross, 1982. "Trade Intensities and the Analysis of Bilateral Trade Flows in a Many-Country World : A Survey," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 22(2), pages 62-84, February.
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    5. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, pages 106-116.
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    Cited by:

    1. Shiro Armstrong, 2007. "Measuring Trade and Trade Potential: A Survey," Asia Pacific Economic Papers 368, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
    2. Horsewood, Nicholas & Voicu, Anca Monika, 2011. "Does corruption facilitate trade for the new EU members?," Economics Discussion Papers 2011-53, Kiel Institute for the World Economy (IfW).
    3. Yu SHENG & Yanrui WU & Xunpeng SHI & Dandan ZHANG, 2014. "Markket Integration and Energy Trade Efficiency: An Application of Malmqvist Index to Analyse Multi-Product Trade," Working Papers DP-2014-20, Economic Research Institute for ASEAN and East Asia (ERIA).
    4. 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.
    5. Sheng, Yu & Wu, Yanrui & Shi, Xunpeng & Zhang, Dandan, 2015. "Energy trade efficiency and its determinants: A Malmquist index approach," Energy Economics, Elsevier, vol. 50(C), pages 306-314.
    6. Swapan K. Bhattacharya & Biswanath Bhattacharyay, 2006. "Prospects of Regional Cooperation in Trade, Investment and Finance in Asia: An Empirical Analysis on BIMSTEC Countries and Japan," CESifo Working Paper Series 1725, CESifo Group Munich.
    7. Ruhul Salim & Shahriar Kabir, 2010. "The Immediate Impact Of Euro On Intra-Regional Trade: An Event Study Approach," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 35(3), pages 43-55, September.
    8. repec:era:chaptr:2013-rpr-29-06 is not listed on IDEAS
    9. Jaap Bos & Mindel van de Laar, 2004. "Explaining Foreign Direct Investment in Central and Eastern Europe: an Extended Gravity Approach," DNB Working Papers 008, Netherlands Central Bank, Research Department.
    10. Das, Gouranga & Bhattacharya, Swapan K., 2009. "Do south-south trade agreements enhance member countries' trade? evaluating implications for development potential in the context of SAARC," MPRA Paper 37255, University Library of Munich, Germany, revised 01 Oct 2010.
    11. Rahman, Mizanur, 2008. "The Impact of a Common Currency on East Asian Production Networks and China’s Exports Behavior," MPRA Paper 13931, University Library of Munich, Germany.
    12. Dinda, Soumyananda, 2013. "Climate Change Creates Trade Opportunity in India," MPRA Paper 50636, University Library of Munich, Germany, revised 14 Oct 2013.
    13. Ahmed, Shahid, 2010. "India-Korea CEPA: Potentials and Realities," MPRA Paper 26206, University Library of Munich, Germany.
    14. Simone Juhasz Silva & Douglas Nelson, 2012. "Does Aid Cause Trade? Evidence from an Asymmetric Gravity Model," The World Economy, Wiley Blackwell, vol. 35(5), pages 545-577, May.
    15. Bhattacharya, Swapan K. & Bhattacharyay, Biswa N., 2007. "An empirical analysis on prospects and challenges of BIMSTEC-Japan trade integration," Journal of Asian Economics, Elsevier, pages 509-536.
    16. Biswa N Bhattacharyay & Swapan K. Bhattacharya, 2010. "Free Trade Agreement between People’s Republic of China and India: Likely Impact and Its Implications to Asian Economic Community," Working Papers id:3272, eSocialSciences.
    17. Bryn Battersby & Robert Ewing, 2005. "International Trade Performance: The Gravity of Australia's Remoteness," Treasury Working Papers 2005-03, The Treasury, Australian Government, revised Jun 2005.
    18. Dinda, Soumyananda, 2011. "Climate Change and Development: Trade Opportunities of Climate Smart Goods and Technologies in Asia," MPRA Paper 34883, University Library of Munich, Germany, revised Nov 2011.
    19. Zwinkels, Remco C.J. & Beugelsdijk, Sjoerd, 2010. "Gravity equations: Workhorse or Trojan horse in explaining trade and FDI patterns across time and space?," International Business Review, Elsevier, pages 102-115.
    20. Soumyananda Dinda, 2011. "Trade Opportunities for Climate Smart Goods and Technologies in Asia," Working Papers 2011/16, Maastricht School of Management.

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