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Trade Performance and Potential of the Philippines: An Application of Stochastic Frontier Gravity Model

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  • Deluna, Roperto Jr

Abstract

This study was conducted to investigate the issue of what Philippine merchandise trade flows would be if countries operated at the frontier of the gravity model. The study sought to estimate the coefficients of the gravity model. The estimated coefficients were used to estimate merchandise export potentials and technical efficiency of each country in the sample and these were also aggregated to measure impact of country groups, RTAs and inter-regional trading agreements. Result of the study shows that technical efficiency for all sample countries is relatively large with standard deviation from the mean of 35.02% suggesting that the frontier is not so distant. The most efficient countries in the sample which recorded more than 90% efficiency were Canada, Australia, New Zealand, USA, Singapore, Denmark, Hongkong, Sweden and UK. In terms of country groups, RTA and Inter-regional trading agreements, APEC recorded as the most efficient trade agreement of the Philippines. The Philippines was also able to established strong link among countries in East Asia, members of AFTA. ASEAN and EU posed export potential. In a country level, China and members of the ASEAN such as Vietnam, Indonesia, Thailand, Cambodia and Malaysia posed the highest export potential for merchandise exports. The significant determinants of these potentials are the expanding market of developing economies and lower trade cost. Then dominance of APEC countries in trade efficiency was verified by the result of the trade inefficiency effect model. Factors reducing technical inefficiencies were membership to APEC, reduction of corruption, and freer business environment. Membership to ASEAN and WTO turns out insignificant in reducing trade inefficiencies of the Philippine exports to member countries.

Suggested Citation

  • Deluna, Roperto Jr, 2013. "Trade Performance and Potential of the Philippines: An Application of Stochastic Frontier Gravity Model," MPRA Paper 51677, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:51677
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    References listed on IDEAS

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    Cited by:

    1. Xu Wang & Ryan P. Badman, 2016. "A Multifaceted Panel Data Gravity Model Analysis of Peru's Foreign Trade," Papers 1612.01155, arXiv.org.
    2. Xu WANG & Ryan P. BADMAN, 2016. "A Multifaceted Panel Data Gravity Model Analysis of Peru’s Foreign Trade," Turkish Economic Review, KSP Journals, vol. 3(4), pages 562-577, December.
    3. Swapan K. Bhattacharya & Gouranga G. Das, 2014. "Can South–South Trade Agreements Reduce Development Deficits?," Journal of South Asian Development, , vol. 9(3), pages 253-285, December.
    4. Henry Chun Kwok Lei, 2017. "The Closer Economic Partnership Arrangement (CEPA) and its impacts on the export efficiency of Hong Kong and Macao," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 15(2), pages 141-163, April.

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    More about this item

    Keywords

    Merchandise exports; Gravity; Stochastic; export potential; Philippine Trade;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General
    • F1 - International Economics - - Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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