IDEAS home Printed from https://ideas.repec.org/a/pid/journl/v59y2020i2p221-242.html
   My bibliography  Save this article

Institutions, Regional Integration and Bilateral Trade in South Asia: PPML Based Evidence

Author

Listed:
  • Saima Nawaz

    (COMSATS University Islamabad (CUI), Pakistan.)

Abstract

This paper empirically investigates the role of institutional framework in promoting bilateral trade through a regional trade agreement (RTA), namely the South Asian Free Trade Area (SAFTA), using an institutions-augmented gravity model. Poisson Pseudo Maximum Likelihood (PPML) estimation technique is used (performed) for a panel of 11 countries over the period 1996-2015. The initial estimation results suggest that this RTA is not effective in promoting regional trade in South Asia. Further empirical analysis reveals that SAFTA contributes significantly to bilateral trade when the impact of institutions is controlled for. The key policy lesson emerging from the analysis is that, given weak institutional structure, a regional agreement may not produce the desired results. Successful trade reforms depend on the institutional framework of the countries involved. Therefore, government should develop institutions to reap the potential benefits of RTAs.

Suggested Citation

  • Saima Nawaz, 2020. "Institutions, Regional Integration and Bilateral Trade in South Asia: PPML Based Evidence," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(2), pages 221-242.
    • Handle: RePEc:pid:journl:v:59:y:2020:i:2:p:221-242
    as

    Download full text from publisher

    File URL: https://pide.org.pk/pdfpdr/2020/221-242.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ulrich Volz (ed.), 2011. "Regional Integration, Economic Development and Global Governance," Books, Edward Elgar Publishing, number 14259.
    2. Nazia Gul & Hafiz M. Yasin, 2011. "The Trade Potential of Pakistan: An Application of the Gravity Model," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(1), pages 23-62, Jan-Jun.
    3. Nawaz, Saima, 2015. "Growth effects of institutions: A disaggregated analysis," Economic Modelling, Elsevier, vol. 45(C), pages 118-126.
    4. Henri L. F. De Groot & Gert‐Jan Linders & Piet Rietveld & Uma Subramanian, 2004. "The Institutional Determinants of Bilateral Trade Patterns," Kyklos, Wiley Blackwell, vol. 57(1), pages 103-123, February.
    5. Francois, Joseph & Manchin, Miriam, 2013. "Institutions, Infrastructure, and Trade," World Development, Elsevier, vol. 46(C), pages 165-175.
    6. Amirul Islam & Ruhul Salim & Harry Bloch, 2016. "Does Regional Integration Affect Efficiency And Productivity Growth? Empirical Evidence From South Asia," Review of Urban & Regional Development Studies, Wiley Blackwell, vol. 28(2), pages 107-122, July.
    7. Santos Silva, J.M.C. & Tenreyro, Silvana, 2010. "On the existence of the maximum likelihood estimates in Poisson regression," Economics Letters, Elsevier, vol. 107(2), pages 310-312, May.
    8. Naseem Akhter & Ejaz Ghani, 2010. "Regional Integration in South Asia: An Analysis of Trade Flows Using the Gravity Model," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(2), pages 105-118.
    9. Anne-Célia Disdier & Keith Head, 2008. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 37-48, February.
    10. Pushan Dutt & Daniel Traca, 2010. "Corruption and Bilateral Trade Flows: Extortion or Evasion?," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 843-860, November.
    11. Santos Silva, J.M.C. & Tenreyro, Silvana, 2011. "Further simulation evidence on the performance of the Poisson pseudo-maximum likelihood estimator," Economics Letters, Elsevier, vol. 112(2), pages 220-222, August.
    12. Jugurnath, Bhavish & Stewart, Mark & Brooks, Robert, 2007. "Asia/Pacific Regional Trade Agreements: An empirical study," Journal of Asian Economics, Elsevier, vol. 18(6), pages 974-987, December.
    13. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 441-487.
    14. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    15. Julia Kubny & Florian Mölders & Peter Nunnenkamp, 2011. "Regional Integration and FDI in Emerging Markets," Chapters, in: Ulrich Volz (ed.), Regional Integration, Economic Development and Global Governance, chapter 8, Edward Elgar Publishing.
    16. 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.
    17. Iqbal, Nasir & Daly, Vince, 2014. "Rent seeking opportunities and economic growth in transitional economies," Economic Modelling, Elsevier, vol. 37(C), pages 16-22.
    18. de Jong, Eelke & Bogmans, Christian, 2011. "Does corruption discourage international trade?," European Journal of Political Economy, Elsevier, vol. 27(2), pages 385-398, June.
    19. Jean-Christophe Bureau & Sébastien Jean, 2013. "The Impact of Regional Trade Agreements on Trade in Agricultural Product [L'impact des accords commerciaux régionaux sur la production agricole]," Working Papers hal-01590459, HAL.
    20. Carrere, Celine, 2006. "Revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model," European Economic Review, Elsevier, vol. 50(2), pages 223-247, February.
    21. Wu, Jun & Li, Shaomin & Samsell, Darryl, 2012. "Why some countries trade more, some trade less, some trade almost nothing: The effect of the governance environment on trade flows," International Business Review, Elsevier, vol. 21(2), pages 225-238.
    22. S. Prehn & B. Brümmer & T. Glauben, 2016. "Gravity model estimation: fixed effects vs. random intercept Poisson pseudo-maximum likelihood," Applied Economics Letters, Taylor & Francis Journals, vol. 23(11), pages 761-764, July.
    23. Ms. Florence Jaumotte, 2004. "Foreign Direct Investment and Regional Trade Agreements: The Market Size Effect Revisited," IMF Working Papers 2004/206, International Monetary Fund.
    24. Bergstrand, Jeffrey H, 1989. "The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 143-153, February.
    25. James E. Anderson & Douglas Marcouiller, 2002. "Insecurity And The Pattern Of Trade: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 342-352, May.
    26. Magerman, Glenn & Studnicka, Zuzanna & Van Hove, Jan, 2016. "Distance and border effects in international trade: A comparison of estimation methods," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 10, pages 1-31.
    27. Brambor, Thomas & Clark, William Roberts & Golder, Matt, 2006. "Understanding Interaction Models: Improving Empirical Analyses," Political Analysis, Cambridge University Press, vol. 14(1), pages 63-82, January.
    28. Changkyu Choi, 2002. "Linder hypothesis revisited," Applied Economics Letters, Taylor & Francis Journals, vol. 9(9), pages 601-605.
    29. Sylvanus Kwaku Afesorgbor, 2017. "Revisiting the effect of regional integration on African trade: evidence from meta-analysis and gravity model," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 26(2), pages 133-153, February.
    30. Yu, Miaojie, 2010. "Trade, democracy, and the gravity equation," Journal of Development Economics, Elsevier, vol. 91(2), pages 289-300, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Suadat Hussain Wani & Effat Yasmin, 2023. "India’s trade with South and Central Asia: an application of institution-based augmented gravity model," Future Business Journal, Springer, vol. 9(1), pages 1-12, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Suadat Hussain Wani & Effat Yasmin, 2023. "India’s trade with South and Central Asia: an application of institution-based augmented gravity model," Future Business Journal, Springer, vol. 9(1), pages 1-12, December.
    2. (ed.), 0. "Research Handbook on Economic Diplomacy," Books, Edward Elgar Publishing, number 16053.
    3. Mehmet Huseyin Bilgin & Giray Gozgor & Chi Keung Marco Lau, 2017. "Institutions and gravity model: the role of political economy and corporate governance," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 7(3), pages 421-436, December.
    4. Salvador Gil-Pareja & Rafael Llorca-Vivero & José Antonio Martínez-Serrano, 2017. "Corruption and International Trade: A Comprehensive Analysis with Gravity," Working Papers 1705, Department of Applied Economics II, Universidad de Valencia.
    5. Beverelli, Cosimo & Keck, Alexander & Larch, Mario & Yotov, Yoto, 2018. "Institutions, Trade and Development: A Quantitative Analysis," School of Economics Working Paper Series 2018-3, LeBow College of Business, Drexel University.
    6. Yoto V. Yotov, 2022. "On the role of domestic trade flows for estimating the gravity model of trade," Contemporary Economic Policy, Western Economic Association International, vol. 40(3), pages 526-540, July.
    7. Marie M Stack & Rob Ackrill & Martin Bliss, 2019. "Sugar trade and the role of historical colonial linkages," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 46(1), pages 79-108.
    8. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    9. Álvarez, Inmaculada C. & Barbero, Javier & Rodríguez-Pose, Andrés & Zofío, José L., 2018. "Does Institutional Quality Matter for Trade? Institutional Conditions in a Sectoral Trade Framework," World Development, Elsevier, vol. 103(C), pages 72-87.
    10. Anderson, James E. & Yotov, Yoto V., 2020. "Short run gravity," Journal of International Economics, Elsevier, vol. 126(C).
    11. Francois, Joseph & Manchin, Miriam, 2013. "Institutions, Infrastructure, and Trade," World Development, Elsevier, vol. 46(C), pages 165-175.
    12. Cooray, Arusha & Jha, Chandan Kumar & Panda, Bibhudutta, 2023. "Corruption and assortative matching of partners in international trade," European Journal of Political Economy, Elsevier, vol. 77(C).
    13. Anderson, James E. & Borchert, Ingo & Mattoo, Aaditya & Yotov, Yoto V., 2018. "Dark costs, missing data: Shedding some light on services trade," European Economic Review, Elsevier, vol. 105(C), pages 193-214.
    14. Zongo, Amara, 2020. "The Impact of Services Trade Restrictiveness on Food Trade," MPRA Paper 101658, University Library of Munich, Germany.
    15. Yoto V. Yotov, 2021. "The Variation of Gravity within Countries (or 15 Reasons Why Gravity Should Be Estimated with Domestic Trade Flows)," CESifo Working Paper Series 9057, CESifo.
    16. Anna Golovko & Hasan Sahin, 2021. "Analysis of international trade integration of Eurasian countries: gravity model approach," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 11(3), pages 519-548, September.
    17. Piermartini, Roberta & Yotov, Yoto, 2016. "Estimating Trade Policy Effects with Structural Gravity," School of Economics Working Paper Series 2016-10, LeBow College of Business, Drexel University.
    18. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2018. "Gravity, distance, and international trade," Chapters, in: Bruce A. Blonigen & Wesley W. Wilson (ed.), Handbook of International Trade and Transportation, chapter 2, pages 15-78, Edward Elgar Publishing.
    19. Bo Xiong & Sixia Chen, 2014. "Estimating gravity equation models in the presence of sample selection and heteroscedasticity," Applied Economics, Taylor & Francis Journals, vol. 46(24), pages 2993-3003, August.
    20. Egger, Peter H. & Nigai, Sergey, 2015. "Structural gravity with dummies only: Constrained ANOVA-type estimation of gravity models," Journal of International Economics, Elsevier, vol. 97(1), pages 86-99.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pid:journl:v:59:y:2020:i:2:p:221-242. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Khurram Iqbal (email available below). General contact details of provider: https://edirc.repec.org/data/pideipk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.