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Prospects for Trade in Intermediates and Trade in Services: What Does the Gravity Model of Bilateral Trade Tell Us?

  • Haruka Yane

    (Graduate student, Osaka School of International Public Policy, Osaka University)

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    This study uses product-level international bilateral trade panel data for the period 1995 to 2009, covering 40 countries from the recently released World Input-Output Database (WIOD). Constructing this dataset into a standard gravity model, this paper aims to compare the magnitude of coefficients across two pairs of equations with different dependent variables: trade in intermediates in comparison with trade in final products, and total trade in goods as opposed to total trade in services. So as to investigate these differences further, this study also analyzes the models by sector. This paper applies the sample selection model in order to account for the zero trade flows. Estimation results confirm that trading partners in East Asia engage much more in both trade in intermediate inputs and assembled final products, especially the former, compared to EU and NAFTA blocs. Trade in services presents remarkable resilience to the current financial crisis. Intermediate services trade, in particular, is affected less by trade costs and market size. By liberalizing trade and increasing economic freedom, there will be a highly significant, positive effect on nearly all kinds of trade flows.

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    File URL: http://www.osipp.osaka-u.ac.jp/archives/DP/2013/DP2013E002.pdf
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    Paper provided by Osaka School of International Public Policy, Osaka University in its series OSIPP Discussion Paper with number 13E002.

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    Length: 31 pages
    Date of creation: Feb 2013
    Date of revision:
    Handle: RePEc:osp:wpaper:13e002
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    1. Kyoji Fukao & Keiko Ito, 2003. "Foreign Direct Investment and Services Trade: The Case of Japan," NBER Chapters, in: Trade in Services in the Asia Pacific Region, NBER East Asia Seminar on Economics (EASE), Volume 11, pages 429-480 National Bureau of Economic Research, Inc.
    2. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
    3. Djankov, Simeon & La Porta, Rafael & López-de-Silanes, Florencio & Shleifer, Andrei, 2001. "The Regulation of Entry," CEPR Discussion Papers 2953, C.E.P.R. Discussion Papers.
    4. Guillaume Daudin & Christine Rifflart & Danielle Schweisguth, 2009. "Who produces for whom in the world economy?," Sciences Po publications 2009-18, Sciences Po.
    5. Jon Haveman & David Hummels, 2004. "Alternative hypotheses and the volume of trade: the gravity equation and the extent of specialization," Canadian Journal of Economics, Canadian Economics Association, vol. 37(1), pages 199-218, February.
    6. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
    7. Takatoshi Ito & Anne O. Krueger, 2003. "Trade in Services in the Asia Pacific Region, NBER East Asia Seminar on Economics (EASE), Volume 11," NBER Books, National Bureau of Economic Research, Inc, number ito_03-1, October.
    8. Borchert, Ingo & Mattoo, Aaditya, 2009. "The crisis-resilience of services trade," Policy Research Working Paper Series 4917, The World Bank.
    9. Takatoshi Ito & Anne O. Krueger, 2003. "Introduction to "Trade in Services in the Asia Pacific Region, NBER East Asia Seminar on Economics (EASE), Volume 11"," NBER Chapters, in: Trade in Services in the Asia Pacific Region, NBER East Asia Seminar on Economics (EASE), Volume 11, pages 1-10 National Bureau of Economic Research, Inc.
    10. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
    11. Sébastien Miroudot & Rainer Lanz & Alexandros Ragoussis, 2009. "Trade in Intermediate Goods and Services," OECD Trade Policy Papers 93, OECD Publishing.
    12. Joao Santos Silva & Silvana Tenreyro, 2005. "The Log of Gravity," CEP Discussion Papers dp0701, Centre for Economic Performance, LSE.
    13. Martijn Burger & Frank van Oort & Gert-Jan Linders, 2009. "On the Specification of the Gravity Model of Trade: Zeros, Excess Zeros and Zero-inflated Estimation," Spatial Economic Analysis, Taylor & Francis Journals, vol. 4(2), pages 167-190.
    14. repec:dgr:uvatin:20060072 is not listed on IDEAS
    15. Sébastien Miroudot & Alexandros Ragoussis, 2009. "Vertical Trade, Trade Costs and FDI," OECD Trade Policy Papers 89, OECD Publishing.
    16. Fukunari Kimura & Hyun-Hoon Lee, 2006. "The Gravity Equation in International Trade in Services," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(1), pages 92-121, April.
    17. Robert C. Johnson & Guillermo Noguera, 2012. "Fragmentation and Trade in Value Added over Four Decades," NBER Working Papers 18186, National Bureau of Economic Research, Inc.
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