Transcript Document

Economic Similarity and
Bilateral Trade
By
I-Hui Cheng (鄭義暉)
Department of Applied Economics,
National University of Kaohsiung, Taiwan
2015/7/7
1
Summary




This research uses the bilateral trade information from
1986 to 2008 and the common types of trade gravity
models, such as the traditional cross-sectional model,
three-way fixed effects model, and bilateral fixed effects
model, to re-examine bilateral trade flow determinants.
This article assumes that the trading economies’
similarity and the bilateral trade volumes’ similarity in
percentage over foreign trade with each other, contribute
to the parties’ willingness to be involved in the same
regional trade group.
Economic similarity does matter in the formation of REI.
Using endogenous REI dummies leads to different
results.
2015/7/7
2
The current trend in world economy

Regional economic integration


As of May, 2012, there have been 489 regional trade
agreements proposed to WTO; 357 of which have
been notified according to the 24th clause in General
Agreement on Tariffs and Trade (GATT); 92 of them
was proposed according to the 5th clause in the
General Agreement for Trade of Service (GATS) and
31 of them were proposed according to the enabling
clause
Trade within the region occupies a high
proportion of the total trade value.
2015/7/7
3
The current trend in world economy
Value of intra-trade (in millions of dollars)
Trade Groups
CEMAC
COMESA
ECOWAS
SADC
CACM
CARICOM
LAIA
MERCOSUR
NAFTA
ASEAN
SAARC
EFTA
EU
Euro zone
APEC
2015/7/7
1980
1995
2000
2005
2008
2010
2011
75
120
96
201
355
881
772
569
1,373
1,518
3,024
5,999
9,538
7,776
661
1,875
2,715
5,497
9,073
8,874
11,928
110
4,427
5,916
10,730
18,981
19,393
20,121
1,174
1,594
2,586
4,342
6,606
5,549
6,105
613
878
1,076
2,087
4,283
2,481
2,973
11,192
35,986
44,253
71,720
138,532
130,289
161,267
3424
14,199
17,829
21,128
43,553
43,782
53,663
102,218
394,472
676,142
824,658
1,013,258
12,413
79,544
98,060
165,458
255,467
263,024
311,033
768
2,172
2,981
8,775
15,077
16,603
20,123
524
925
831
1,252
2,910
2,088
2,945
1,419,198 1,641,252
2,732,159
3,972,306 3,329,971 3,869,925
976,929
1,629,914
2,301,183 1,945,733 2,243,062
1,688,706 2,262,711
3,310,753
4,694,781 4,874,714 5,680,394
499,570
309,150
357,698
9,029,52
955,315 1,101,189
4
The current trend in world economy
Value of intra-trade as percentage of each group
Trade Groups
CEMAC
COMESA
ECOWAS
SADC
CACM
CARICOM
LAIA
MERCOSUR
NAFTA
ASEAN
SAARC
EFTA
EU
Euro zone
APEC
2015/7/7
1980
66.5
79.2
73.5
52.6
37.2
7.8
25.4
31.8
79.0
29.0
14.9
1.4
86.0
70.6
..
1990
40.3
42.0
77.1
85.8
33.0
21.0
25.8
43.1
87.4
42.0
13.3
1.1
91.2
71.8
..
1995
30.3
41.0
74.4
84.5
31.2
22.2
17.1
38.7
91.0
39.1
13.9
0.8
92.4
69.9
..
2000
28.7
41.2
74.6
80.7
24.5
15.2
19.3
26.7
90.5
39.5
15.6
0.7
91.0
68.9
..
2005
33.9
45.7
66.9
80.6
25.2
21.0
23.0
32.5
88.0
39.0
14.2
1.0
90.3
67.3
..
2008
34.1
53.6
68.1
79.5
26.8
22.0
25.7
35.8
86.1
38.8
13.1
1.1
89.4
66.8
..
2010
49.8
61.1
54.7
75.9
24.7
18.8
25.7
40.0
85.2
36.8
12.2
0.9
89.6
67.6
2011
44.9
52.0
60.4
78.8
23.2
19.2
26.0
39.8
84.4
36.3
11.8
1.1
88.9
66.8
5
The literature

The Dummy Variable Approach





2015/7/7
Integration schemes in western Europe [Aitken, 1973;
Mayes, 1978; Nelsson, 2000]
Imperfect competition [Bergstrand, 1985,1989]
Currency volatility [Thursby & Thursby, 1987; Frankel
and Wei, 1998].
Different regional blocs [Bayoumi & Eichengreen,
1997; Frankel et al., 1995,1998; Egger, 2004]
2-stage REI dummies [Baier & Bergstrand, 2007]
6
The literature

The Heterogeneity Does Matter






2015/7/7
Helpman (1987): Imperfect competition
Hummels & Levinsohn (1995): Monopolistic
competition + IIT.
Mátyás, L. (1997) : The heterogeneity of trader
Cheng & Wall (1999,2005) & Feenstra (2002): The
heterogeneity of bilateral trade relationships
Baltagi et al (2003): The heterogeneity of bilateral
trade relationships, and traders.
Egger: 2SLS approach: use REI twice.
7
The bilateral trade model

The gravity-type equation of bilateral trade


Pöyhönen (1963), Linnemann (1966).
X ij   0
Typical type:
X ij   0

Yi 1 Y j 2
Dij
( Rij )  3
3
Frictionless type:
X ij 
2015/7/7
( EiP ) 1 ( M Pj )  2
Yi Y j
Yw
8
Discussion on Relative distance as
the proxies of transport costs

Relative distance between two places



Conventional explanatory variables include:


The cost of overcoming the friction of absolute
distance,
Social, cultural and economic connectivity.
Distance, language, common border, economic
agreement, political alliance, religion, etc.
How to find better ones?
2015/7/7
9
On the statistical specification

Available Models



2015/7/7
Cross-sectional Model
 Single CS
 Pooled CS [in this paper]
Difference Model
Fixed-effect Model
 Two-way FE [in this paper]
 Three-way FE [in this paper]
10
The empirical gravity-type models

The basic model (Mátyás (1997), Model FEM)
ln X ijt  t  i   j  1 ln Yit   2 ln Y jt  3 ln N it   4 ln N jt
 5 ln DISTij  6 LANGij  7 ADJij  8 REAijt  8 SIMijt   ijt

Cheng & Wall (1999,2005), Feenstra (2002) (Model
FCW) :
ln X ijt  t  ij   1 ln Yit   2 ln Y jt   3 ln N it   4 ln N jt
 8 REAijt  8 SIMijt   ijt

Carr, Markusen & Markus (2001), Anderson & van
Wincoop (2003), Baltagi, Egger & Pfaffermayr (2003)
(Model BEP) :
ln X ijt   t   ij   i   j   1 ln Yit   2 ln Y jt   3 ln Nit   4 ln N jt
 8 REAijt  8 SIMijt   ijt
2015/7/7
11
Arbitrary preferences
Deardorff (1998):
Tij 
YiY j
Yw

~
~
1   kik  jk

• λk: good k’s share of the world market
• αik: exporter i’s production share
• βjk: importer j’s consumption share
• “~”: the difference between the average.
2015/7/7
12
Impeded trade
Deardorff (1998):

1

Y
Y

i j 1
ij
fob
Tij 

Yw tij   h ih1
 h





where
• tij: transport cost of the Samuelson iceberg form
• θh: country’ share of the world income
• ρij: the TC weighted with the average distance δ,
ij 
2015/7/7
tij

S
j
13
Economic similarity
• Economic size:
2
 Yit   Y jt 
 

SIMijt  1  
Y Y  Y Y 
 it jt   it jt 
2
• Per capita GDP
• Bilateral export
• Bilateral import
2015/7/7
14
Related empirical topics




Linder hypothesis
Intra-industry trade
Dispersion or similarity
Openness
2015/7/7
15
The data



The exporting value of 41 exporting countries
and 57 importing countries, from 1986 to 2008,
52,486 obs.; 2282 pairs.
Data resources: IMF DOTS, 1986-2008 ; The
WDI Indicators 2010.
REI dummies: The European Union (EU), The
Euro Zone (EURO), North American FTA
(NAFTA), the South American Common Market
(MERCUSOR), and the ASEAN Free Trade
Area (AFTA).
2015/7/7
16
Correlation matrix of economic
similarity variables
Table 1
sim_gdp
sim_gdp
1.0000
sim_pop
0.3091
1.0000
sim_ypc
0.2464
0.1107
1.0000
sim_x_xi
0.4414
0.0599
0.1621
1.0000
sim_m_mi
0.5198
0.0828
0.1797
0.2925
2015/7/7
sim_pop
sim_ypc
sim_x_xi
sim_m_mi
1.0000
17
The empirical results



Basic model ＋ REI dummies ＋ similarity
Modified model ＋ REI dummies ＋ similarity
Bilateral trade in East Asia (exercise)
2015/7/7
18
The estimation results
Pooled model－CS
Pooled model－CS
Pooled model－CS
Table 2
I
constant
lngdpi
lngdpj
lnpopi
lnpopj
lndistij
language
adjacency
2015/7/7
-1.939*
(0.674)
1.459*
(0.008)
1.085*
(0.007)
-0.298*
(0.008)
-0.128*
(0.008)
-0.959*
(0.014)
0.899*
(0.026)
0.358*
(0.063)
II
2.871*
(0.297)
1.417*
(0.007)
0.990*
(0.007)
-0.272*
(0.007)
-0.096*
(0.007)
-0.862*
(0.014)
0.903*
(0.026)
0.290*
(0.062)
I
-6.011*
(0.675)
1.282*
(0.006)
1.004*
(0.006)
-1.025*
(0.015)
0.860*
(0.027)
0.215*
(0.064)
II
I
II
0.240
(0.396)
1.252*
(0.006)
0.923*
(0.005)
2.374*
(0.666)
5.567*
(0.302)
1
1
1
1
-0.913*
(0.014)
0.869*
(0.026)
0.165*
(0.062)
-0.018*
(0.006)
-0.064*
(0.006)
-1.028*
(0.015)
0.751*
(0.027)
0.353*
(0.065)
-0.017*
(0.006)
-0.114*
(0.006)
-0.897*
(0.015)
0.808*
(0.026)
0.283*
(0.064)
19
Pooled model－CS
Pooled model－CS
Pooled model－CS
Table 2
EU
EURO
NAFTA
SEAFTA
MERCOSUR
SIM_GDP
SIM_YPC
SIM_EXPORT
SIM_IMPORT
2015/7/7
I
II
I
II
I
II
-0.583*
(0.056)
-0.153^
(0.089)
-0.410*
(0.213)
2.796*
(0.180)
2.147*
(0.163)
0.892*
(0.131)
1.261*
(0.479)
-0.507*
(0.055)
-0.163^
(0.087)
-0.145
(0.208)
2.393*
(0.176)
2.230*
(0.159)
-0.278*
(0.056)
-0.138
(0.091)
-0.358^
(0.217)
2.463*
(0.183)
2.066*
(0.166)
1.080*
(0.134)
0.247
(0.483)
-0.241*
(0.055)
-0.150^
(0.088)
-0.087
(0.211)
2.075*
(0.178)
2.164*
(0.162)
-0.082
(0.057)
-0.178*
(0.092)
0.305
(0.220)
2.401*
(0.187)
1.633*
(0.169)
0.493*
(0.132)
-1.311*
(0.494)
-0.165*
(0.055)
-0.180*
(0.090)
0.359^
(0.214)
2.026*
(0.181)
1.886*
(0.164)
-1.727*
(0.467)
2.058*
(0.057)
1.256*
(0.056)
-2.820*
(0.470)
2.123*
(0.058)
1.448*
(0.057)
-5.292*
(0.476)
1.987*
(0.058)
1.643*
(0.056)
20
FE2 (ij, t)
FE2 (ij, t)
FEM (i, j, t)
FEM (i, j, t)
I
I
I
I
Table 3
II
4.267
(2.708)
-27.05*
(2.642)
1.743*
(0.074)
1.453*
(0.075)
0.285*
(0.087)
0.432*
(0.108)
1.889*
(0.073)
1.389*
(0.076)
0.212*
(0.085)
0.648*
(0.106)
1.678*
(0.065)
1.459*
(0.066)
0.242*
(0.076)
0.559*
(0.094)
1.819*
(0.065)
1.353*
(0.068)
0.197*
(0.076)
0.739*
(0.094)
Lndistij
-1.411*
(0.014)
-1.307*
(0.014)
Language
0.848*
(0.026)
0.749*
(0.026)
Adjacency
-0.341*
(0.054)
-0.241*
(0.054)
lngdpj
Lnpopi
Lnpopj
2015/7/7
1.520*
(0.053)
1.467*
(0.052)
0.411*
(0.061)
0.032
(0.087)
1.820
0.050)
1.323*
(0.051)
0.343*
(0.057)
0.243*
(0.084)
45.42*
(4.165)
-23.15*
(1.540)
II
-41.48*
(2.946)
lngdpi
-33.68*
(1.701)
II
-19.55*
(3.083)
constant
32.34*
(4.440)
II
1
1
1
1
0.502*
(0.061)
0.029
(0.087)
0.485*
(0.058)
0.214*
(0.084)
21
FE2 (ij, t)
FE2 (ij, t)
FEM (i, j, t)
FEM (i, j, t)
I
I
I
I
Table 3
II
II
II
II
eu_2
-0.196*
(0.078)
-0.048
(0.075)
-0.290*
(0.079)
-0.160*
(0.075)
1.093*
(0.055)
0.996*
(0.054)
-0.593*
(0.051)
-0.540*
(0.051)
euro_2
-0.138*
(0.069)
-0.230*
(0.066)
-0.152*
(0.069)
-0.249*
(0.066)
-0.022
(0.087)
-0.018
(0.085)
-0.023
(0.076)
-0.016
(0.076)
nafta_2
0.309
(0.264)
0.238
(0.254)
0.238
(0.265)
0.154
(0.254)
2.501*
(0.203)
1.807*
(0.199)
1.101*
(0.181)
0.512*
(0.181)
seafta_2
0.046
(0.139)
0.028
(0.133)
0.208
(0.139)
0.209
(0.133)
2.764*
(0.173)
2.537*
(0.170)
0.106*
(0.153)
0.200
(0.154)
sacu_2
0.268
(0.171)
0.486*
(0.164)
0.156
(0.171)
0.343*
(0.165)
5.043*
(0.153)
4.785*
(0.151)
2.132*
(0.139)
2.198*
(0.140)
2015/7/7
22
FE2 (ij, t)
FE2 (ij, t)
FEM (i, j, t)
I
I
I
FEM (i, j, t)
Table 3
sim_gdp
-12.83*
(0.802)
sim_ypc
13.81*
(1.419)
sim_export
sim_import
II
II
-13.76*
(0.770)
6.863*
(1.367)
2.859*
(0.059)
2.438*
(0.067)
15.86*
(1.413)
II
-4.305*
(0.179)
8.924*
(1.367)
2.854*
(0.059)
2.374*
(0.067)
3.714*
(0.517)
I
II
-6.053*
(0.157)
-4.294*
(0.506)
2.181*
(0.060)
1.576*
(0.060)
-4.144*
(0.457)
-10.19*
(0.457)
1.160*
(0.055)
0.608*
(0.054)
Observations
50891
50437
50891
50437
50891
50437
50891
50437
Parameters
2316
2317
2314
2375
130
131
133
134
log-likelihood
-86230.4
-83384.9
-86321.9
Adj R-squared
0.8622
0.8723
0.6784
-83543.9 -106431.8 -104584.2 -99649.85 -98989.7
0.7013
0.7083
0.7170
0.7765
0.7733
Akaike Info. Crt. 177092.8 167278.0 177271.8 167584.0 213123.5 209430.3 199565.7 198247.4
Bay. Info. Crt.
2015/7/7
197560.3 169520.4 197721.7 169773.4 214272.4 210586.9 200741.1 199430.4
23
The estimation results (using IV)
Pooled model－CS
FE2 (ij, t)
FEM (i, j, t)
Table 4
I
lngdpi
lngdpj
lnpopi
lnpopj
eu_2
euro_2
nafta_2
seafta_2
sacu_2
2015/7/7
1.461*
(0.008)
1.106*
(0.007)
-0.329*
(0.008)
-0.162*
(0.009)
1.003*
(0.054)
-0.162^
(0.096)
1.153*
(0.224)
4.460*
(0.192)
4.274*
(0.167)
II
1
1
-0.047*
(0.007)
-0.086*
(0.007)
1.614*
(0.054)
-0.196*
(0.099)
1.908*
(0.231)
4.097*
(0.198)
3.780*
(0.172)
I
1.740*
(0.051)
1.320*
(0.053)
0.316*
(0.060)
0.503*
(0.073)
-0.099
(0.078)
-0.129^
(0.068)
0.347
(0.263)
-0.002
(0.138)
0.277^
(0.170)
II
1
1
0.430*
(0.059)
0.544*
(0.073)
-0.194*
(0.078)
-0.140*
(0.068)
0.268
(0.263)
0.161
(0.138)
0.151
(0.170)
I
1.820*
(0.074)
1.383*
(0.078)
0.265*
(0.087)
0.546*
(0.106)
1.096*
(0.054)
-0.014
(0.087)
2.150*
(0.203)
2.788*
(0.174)
5.077*
(0.154)
II
1
1
0.396*
(0.086)
0.605*
(0.106)
1.076*
(0.054)
-0.026
(0.087)
2.127*
(0.203)
2.924*
(0.173)
5.026*
(0.154)
24
The estimation results (using IV)
Pooled model－CS
FE2 (ij, t)
FEM (i, j, t)
Table 4
I
lngdpi
lngdpj
lnpopi
lnpopj
eu_2
euro_2
nafta_2
seafta_2
sacu_2
2015/7/7
1.461*
(0.008)
1.106*
(0.007)
-0.329*
(0.008)
-0.162*
(0.009)
1.003*
(0.054)
-0.162^
(0.096)
1.153*
(0.224)
4.460*
(0.192)
4.274*
(0.167)
II
1
1
-0.047*
(0.007)
-0.086*
(0.007)
1.614*
(0.054)
-0.196*
(0.099)
1.908*
(0.231)
4.097*
(0.198)
3.780*
(0.172)
I
1.740*
(0.051)
1.320*
(0.053)
0.316*
(0.060)
0.503*
(0.073)
-0.099
(0.078)
-0.129^
(0.068)
0.347
(0.263)
-0.002
(0.138)
0.277^
(0.170)
II
1
1
0.430*
(0.059)
0.544*
(0.073)
-0.194*
(0.078)
-0.140*
(0.068)
0.268
(0.263)
0.161
(0.138)
0.151
(0.170)
I
1.820*
(0.074)
1.383*
(0.078)
0.265*
(0.087)
0.546*
(0.106)
1.096*
(0.054)
-0.014
(0.087)
2.150*
(0.203)
2.788*
(0.174)
5.077*
(0.154)
II
1
1
0.396*
(0.086)
0.605*
(0.106)
1.076*
(0.054)
-0.026
(0.087)
2.127*
(0.203)
2.924*
(0.173)
5.026*
(0.154)
25
The empirical exercise for
research students
2015/7/7
26
The empirical exercise
(Model FCW (ij, t), I.)
exporter CHN HKG IDO
importer
2.57
CHN
JPY KOR MYS PHL SGP THL
0.21
2.28
2.78
1.40
1.68
3.00
1.14
1.30
1.90
2.27
1.59
3.28
3.01
1.05
1.46
1.51
2.24
3.02
3.65
0.55
3.26
0.66
1.20
1.09 -0.18
0.79
1.33
1.24
0.07
2.48
3.69
0.89
3.56
1.08
HKG
1.50
IDO
0.91
3.07
JPY
1.22
1.90 -0.32
KOR
1.71
2.27 -0.27 3.26
MYS
1.40
2.66
1.54
1.73
1.86
PHL
1.68
4.34
2.31
2.27
2.40
2.48
SGP
1.93
3.07
1.88
1.09
1.24
2.62
2.50
THL
1.84
2.83
0.55
1.59
1.84
1.60
1.79
2015/7/7
1.14
2.91
27
The empirical exercise
(Model FCW (ij, t), II.)
exporter CHN HKG IDO
importer
JPY KOR MYS PHL SGP THL
-0.46 -2.45 0.64
CHN
0.15
5.96
0.46
1.30
6.67
0.91
HKG
-1.19
IDO
-2.23 5.59
JPY
-0.09 0.15 -3.40
KOR
1.48
MYS
-0.21 1.82 -0.29 -1.10 -0.70
PHL
0.67
10.2
7.22
SGP
5.23
6.67
6.55 -2.41 -1.94 4.33
THL
0.59
1.76 -1.97 -2.11 -1.33 -2.18 0.41
2015/7/7
4.73
2.20 -0.21 0.67
1.09
9.43
-2.54 -2.38 -0.16 7.34
7.41 -1.97
4.40 -1.83 -0.15 -2.41 -2.97
1.30 -3.24 4.40
0.58
-1.43 0.27 -1.94 -2.18
1.00
3.17
3.17
5.06 -2.31
7.72
6.99
0.28
1.17
2.02
28
The empirical exercise
Model FCW (ij, t), I: using instrument variables.
exporter CHN HKG IDO JPY KOR MYS PHL SGP THL
importer
0.33 -1.52 0.25
CHN
1.37 -0.72
0.36
2.06
1.50 -0.67
-1.44 -1.40 -0.60 0.74
0.94 -2.21
HKG
0.13
IDO
-1.58 0.45
JPY
-0.21 0.04 -1.85
KOR
0.21
MYS
-0.18 0.57 -0.55 -0.23 -0.12
PHL
0.06
2.52
0.79
SGP
0.91
1.50
0.54 -0.66 -0.53 1.00
THL
-0.78 -0.27 -2.21 -1.33 -1.11 -1.15 -0.83 -0.20
2015/7/7
0.04
0.67 -0.18 0.06
0.04
0.11
1.20 -0.69 -0.23 -0.66 -1.73
0.36 -1.80 1.20
0.23
-0.58 -0.11 -0.53 -1.52
0.35
0.75
0.75
1.45 -1.10
1.85 -0.77
1.39
-0.60
29
The conclusion


Economic similarity does matter in the
formation of REI.
Using endogenous REI dummies leads to
different results.
2015/7/7
30
References







Anderson, J. E., (1979) “A Theoretical Foundation for the Gravity Equation,” American
Economic Review, 69, 1, 106-116.
Anderson, J., and van Wincoop, E., (2003) “Gravity with Gravitas: A Solution to the
Border Puzzle,” American Economic Review, 93, 170-192.
Baier, S. L. and Bergstrand, J. H., (2007) “Do Free Trade Agreements Actually Increase
Members’ International Trade?” Journal of International Economics, 71, 72-95.
Baltagi, B., Egger, P. H. and Pfaffermayr, M., (2003) “A Generalized Design for Bilateral
Trade Flow Models,” Economics Letters, 80, 3, 391-397.
Bergstrand, J. H., (1985) “The Gravity Equation in International Trade: Some
Microeconomic Foundations and Empirical Evidence,” Review of Economics and
Statistics, 67, 474-481.
Brada, J. C. and Mendez, J. A., (1985) “Economic Integration among Developed,
Developing and Centrally Planned Economies: A Comparative Analysis,” Review of
Economics and Statistics, 67, 4, 549-556.
Carr, D. L., Markusen, J. E. and Markus, K. E., (2001) “Estimating Knowledge-Capital
Model of the Multinational Enterprise,” American Economic Review, 91, 3, 691-708.
2015/7/7
31
References






Deardorff, A.V., (1998) “Determinants of Bilateral Trade: Does Gravity Work in a
Neoclassical World?” in J. A. Frankel, Ed., The Regionalization of the World Economy,
University of Chicago Press, Chicago.
Feenstra, R. C., (2002) Advanced International Trade, Princeton University Press,
Princeton, New Jersey.
Frankel, F., Stein, E. and Wei, S., (1995) “Trading Blocs and Americas: The Natural,
the Unnatural, and the Super-natural,” Journal of Development Economics, 47, 61-95.
Helpman, E., (1987) “Imperfect Competition and International Trade: Evidence from
Fourteen Industrial Countries,” Journal of the Japanese and International Economies, 1,
1, 62-81.
Hummels, D. and Levinsohn, J., (1995) “Monopolistic Competition and International
Trade: Reconsidering the Evidence,” Quarterly Journal of Economics, 110, 3, 799-836.
Mátyás, L., (1997) “Proper Econometric Specification of the Gravity Model,” The World
Economy, 20, 363-368.
2015/7/7
32
Thank you very much.
2015/7/7
33