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The determinants of bilateral trade

Author

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  • Huiwen Lai
  • Susan Chun Zhu

Abstract

In this paper we present a monopolistic competition model that incorporates asymmetric trade barriers and international differences in production costs. The model implies a highly non-linear bilateral trade equation. Estimation of this equation yields parameters for the elasticity of substitution and trade costs that are more reasonable than those found in previous studies. A simulation indicates that trade liberalization will shift trade from rich countries to poor countries and from within continental trading partners with preferential trade agreements to intercontinental trading partners.

Suggested Citation

  • Huiwen Lai & Susan Chun Zhu, 2004. "The determinants of bilateral trade," Canadian Journal of Economics, Canadian Economics Association, vol. 37(2), pages 459-483, May.
    • Handle: RePEc:cje:issued:v:37:y:2004:i:2:p:459-483
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    Citations

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    Cited by:

    1. Muhammad Imtiaz Subhani & Amber Osman & Rabia Khokhar, 2011. "The new version of gravity model in explaining bilateral trade. “A comparative study for developed and developing nations”," EuroEconomica, Danubius University of Galati, issue 28, pages 41-54, May.
    2. Subhani, Muhammad Imtiaz & Osman, Ms.Amber & Khokhar, Rabbia, 2010. "Determinants and barriers to bilateral trade A study on developing economies," MPRA Paper 26179, University Library of Munich, Germany.
    3. Maria Cipollina & Luca Salvatici, 2019. "The Trade Impact of EU Tariff Margins: An Empirical Assessment," Social Sciences, MDPI, vol. 8(9), pages 1-15, September.
    4. Maria Cipollina & David Laborde Debucquet & Luca Salvatici, 2017. "The tide that does not raise all boats: an assessment of EU preferential trade policies," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(1), pages 199-231, February.
    5. Narayanan, Badri G. & Hertel, Thomas W. & Horridge, J. Mark, 2010. "Disaggregated data and trade policy analysis: The value of linking partial and general equilibrium models," Economic Modelling, Elsevier, vol. 27(3), pages 755-766, May.
    6. Pascal Ghazalian, 2013. "MERCOSUR enlargement: predicting the effects on trade in primary agricultural commodities," Economic Change and Restructuring, Springer, vol. 46(3), pages 277-297, August.
    7. Chor, Davin, 2010. "Unpacking sources of comparative advantage: A quantitative approach," Journal of International Economics, Elsevier, vol. 82(2), pages 152-167, November.
    8. Florian Mölders & Ulrich Volz, 2011. "Trade creation and the status of FTAs: empirical evidence from East Asia," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 147(3), pages 429-456, September.
    9. Pascal L. Ghazalian, 2019. "Canada's beef exports: Border effects and prospects for market access," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 67(1), pages 53-74, March.
    10. Narayana, Badri G. & Hertel, Thomas W. & Horridge, J. Mark, 2010. "Linking Partial and General Equilibrium Models: A GTAP Application Using TASTE," Technical Papers 283427, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    11. Maria Cipollina & Luca Salvatici, 2022. "The Dark Matter of Bilateral Preferential Margins: An Assessment of the Effect of US Tariffs," Sustainability, MDPI, vol. 14(8), pages 1-16, April.
    12. Yukiko Ito, 2015. "Is starting FDI more productive than staying at home? Manufacturing and service sectors in Japan," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 24(1), pages 105-131, February.
    13. Nilotpal Goswami, 2013. "Determinants of Trade Development: Panel Evidence from South Asia," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 14(1), pages 17-33, March.
    14. Feifei Wu & Xinyu Yan, 2018. "Institutional Quality and Sustainable Development of Industries’ Exports: Evidence from China," Sustainability, MDPI, vol. 10(11), pages 1-22, November.
    15. Cipollina, Maria & Laborde, David & Salvatici, Luca, 2013. "Do Preferential Trade Policies (Actually) Increase Exports? An analysis of EU trade policies," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150177, Agricultural and Applied Economics Association.
    16. Sultan, Maryam & Munir, Kashif, 2015. "Export, Import and Total Trade Potential of Pakistan: A Gravity Model Approach," MPRA Paper 66621, University Library of Munich, Germany.
    17. Raimondi, Valentina & Olper, Alessandro, 2009. "The sensitivity of trade flows to trade barriers," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 50658, Agricultural and Applied Economics Association.

    More about this item

    JEL classification:

    • F1 - International Economics - - Trade

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