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Empirical Evidence on the North-South Trade Flows: an Augmented Gravity Model

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  • Giorgio, Ricchiuti

Abstract

In this paper we analyse the determinants of the trade flows between Developed and Developing Countries using an augmented version of the Gravity Equation. We add two extra variables: the technological distance and the bilateral real exchange rate (RER). The former allows us to analyse the impact of the technological gap on trade structure, the latter to study the movement in the relative prices and their impact on trade pattern. We estimate a Fixed Effects Model (FEM) for different groups of countries. The sign and the numerical value of the coefficients of GDP and Population are different when we analyse separately emerging countries as importers or exporters. This result supports the assumption that determinants of trade, for the two areas (Developed vs Emerging Countries), are not the same. Moreover, as expected, the geographical and the technological distance appear as barriers to trade, and the positive effect on export of a devaluation of the bilateral real exchange rate is confirmed by our results.

Suggested Citation

  • Giorgio, Ricchiuti, 2004. "Empirical Evidence on the North-South Trade Flows: an Augmented Gravity Model," MPRA Paper 1326, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:1326
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    References listed on IDEAS

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    1. Hildergart Ahumada & Lorena Garegnani, 1999. "Hodrik – Prescott filter in practice," Económica, Instituto de Investigaciones Económicas, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 0(4), pages 61-76.
    2. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-481, August.
    3. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
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    Cited by:

    1. Shaista Khan & Ihtisham ul Haq & Dilawar Khan, 2013. "An Empirical Analysis of Pakistan’s Bilateral Trade: A Gravity Model Approach," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 16(48), pages 103-120, June.
    2. Megdam Khalil Ibrahim Khalil & Li Xiumin, 2014. "Identifying the Impact of RMB and SDG Exchange Rate Variability on the Trade Value between China and Sudan (1986-2012)," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 2(3), pages 141-158.

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    More about this item

    Keywords

    Gravity Models; Panel Analysis; Exchange Rate; Technological Gap;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F19 - International Economics - - Trade - - - Other

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