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Effects of Geopolitical Risks on Trade Flows: Evidence from the Gravity Model

Author

Listed:
  • Ender Demir

    (Istanbul Medeniyet University, Istanbul, Turkey)

  • Giray Gozgor

    (Istanbul Medeniyet University, Istanbul, Turkey)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Huseyin Kaya

    (Istanbul Medeniyet University, Istanbul, Turkey)

Abstract

Using a classical gravity model, this paper examines the effects of geopolitical risks on trade flows, from 18 exporter emerging economies into 164 importer countries, for the period of 1985 to 2013. We use the new index of geopolitical risks (GPR index) and to the best of our knowledge, it is the first paper in the literature that considers the new GPR index in a gravity model. The paper implements the fixed-effects (FE), the random-effects (RE), the Hausman-Taylor (HT), and the Poisson Pseudo-maximum Likelihood (PPML) estimations. The findings indicate that geopolitical risks negatively affect the trade flows. The paper also discusses the potential policy implications.

Suggested Citation

  • Ender Demir & Giray Gozgor & Rangan Gupta & Huseyin Kaya, 2018. "Effects of Geopolitical Risks on Trade Flows: Evidence from the Gravity Model," Working Papers 201835, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201835
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    More about this item

    Keywords

    geopolitical risks; trade flows; international trade; gravity model; emerging economies; panel data estimation techniques;
    All these keywords.

    JEL classification:

    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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