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Factors Affecting Textile Exports to OPEC Countries Discussion

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Factors Affecting Textile Exports to OPEC Countries in 2010: Using Gravity Model

2.1 Introduction

There has been increasing interest in the relevance of international trade flows and

the dynamics of such trade as it is influenced by geography, distance and varied aspects

of culture such as common language, religion, or colonizers. Recent literature on the

transmission channels of international trade has displayed interesting results with

improvements in technology and declining transport costs affecting the classical gravity

model. There is significant theoretical and empirical research on international trade

patterns assessing the effects of different factors like distance, culture, and geography on

the intensive and extensive margin. The wide array of literature available on international

trade flows has assessed the effects of distance on trade, the dynamics of trade as

influenced by the former colonizers, cultural distance, and effects of trade preferences in

the gravity model.

In order to get a good background on the effects of the highlighted factors on

international trade, empirical and theoretical literature will be assessed in this review. The

main sources of the literature are Agostino, Aiello, & Cardamone (2008), on the issue of

trade preferences and the effect on the gravity model of international trade. The literature

on intensive and extensive margins and how they are influenced by the distance between

countries will be assessed. The main sources for this are Cheong, Kwak, & Tang (2013);

Chaney (2013); and Krautheim (2012). Another major part of the literature is the issue of

cultural distance and the effect of colonizers on the amount and intensity of trade among

different countries. Some of the main sources of literature in this area include Groot et al.

(2004) and (Berthou & Ehrhart, 2013). Additional sources for the application of the

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gravity model will also be reviewed to indicate how it is used and the benefits it can offer

in the analysis. The article by Anderson & Wincoop (2003) “Gravity with gravitas: A

solution to the border puzzle” will form a good basis for the utilization and understanding

of the gravity model.

2.2 Literature survey of the gravity approach to trade

The model

The gravity model focuses on the use of spatial interactions among variables

through the general idea of gravity theory in physics. The theory and model were initially

applied in different social sciences including sociology. Its first application in the

econometrics domain was in the seminal paper by Tinbergen on international trade

relations in 1962. However, the initial theoretical explanation of the gravity model, which

was based on expenditure systems, was undertaken by Anderson (1979). Afterward,

studies focused on improving the theoretical basis of the gravity model were undertaken

such as Deardorff (1998). The success of the model in the econometrics and international

trade areas was consistent with its applicability in several social science fields.

The gravity equations or models have been applied as a basic tool for assessing

international trade for many years. These publications present some of the successful

applications of the model I bilateral trade relations (Redding and Venables, 2004; Brun et

al., 2002; Novy, 2013; and Liu and Xin, 2011). The gravity model indicates that the flow

of trade between two points enlarges in direct ratio to the economic activity level or

population between the different points and responds inversely to the geographical

distance between the two points. Generally, the gravity models refer to bilateral trade

flows based on country-specific characteristics of trade partners. The models analyze the

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Factors Affecting Textile Exports to OPEC Countries in 2010: Using Gravity Model 2.1 Introduction There has been increasing interest in the relevance of international trade flows and the dynamics of such trade as it is influenced by geography, distance and varied aspects of culture such as common language, religion, or colonizers. Recent literature on the transmission channels of international trade has displayed interesting results with improvements in technology and declining transport costs affecting the classical gravity model. There is significant theoretical and empirical research on international trade patterns assessing the effects of different factors like distance, culture, and geography on the intensive and extensive margin. The wide array of literature available on international trade flows has assessed the effects of distance on trade, the dynamics of trade as influenced by the former colonizers, cultural distance, and effects of trade preferences in the gravity model. In order to get a good background on the effects of the highlighted factors on international trade, empirical and theoretical literature will be assessed in this review. The main sources of the literature are Agostino, Aiello, & Cardamone (2008), on the issue of trade preferences and the effect on the gravity model of international trade. The literature on intensive and extensive margins and how they are influenced by the distance between countries will be assessed. The main sources for this are Ch ...
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Tags: Textile Exports OPEC Countries international trade increasing interest distance on trade