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On the Determinants of Trade in Natural Gas: A Political Economy Approach

Author

Listed:
  • Farag, Markos

    (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))

  • Zaki, Chahir

    (Cairo University, Faculty of Economics and Political Science)

Abstract

This paper aims to analyze the determinants of trade in natural gas through a political economy lens. Indeed, in addition to the economic determinants of trading in natural gas, the latter could be affected by political determinants such as the economic sanctions and the institutional gap between the trading partners. Moreover, while the literature considers the effect of tariffs, less attention has been attributed to non-tariff measures (NTMs) that might also be imposed for political reasons. To quantify the impact of these different determinants on natural gas trade, we use a gravity model that explains bilateral trade for pipeline natural gas (PNG) and liquefied natural gas (LNG) over the period 2000-2017. We also consider the zero trade flows of natural gas by using the Poisson Pseudo Maximum Likelihood estimator. Our results show that economic sanctions have reduced bilateral LNG trade by 24%, on average. We also find that the institutional gap between trading partners exerts a significant negative effect on bilateral PNG and LNG trade, pointing out that institutions could be considered as fixed export costs in the natural gas market. Moreover, our results indicate that, in addition to tariffs, non-tariff measures have a significant negative effect on trade in natural gas.

Suggested Citation

  • Farag, Markos & Zaki, Chahir, 2021. "On the Determinants of Trade in Natural Gas: A Political Economy Approach," EWI Working Papers 2021-8, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
  • Handle: RePEc:ris:ewikln:2021_008
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    References listed on IDEAS

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    More about this item

    Keywords

    Natural gas; gravity model; institutions; economic sanctions;
    All these keywords.

    JEL classification:

    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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