The gravity model at work: An empirical study on the effects of governance on bilateral trade flows with special emphasis on intra-Arab trade.

摘要

Does governance affect international trade? In other words, does the existence/lack of voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption within two countries enhance/restrict their bilateral trade? This dissertation aims to answer this question, with special emphasis on intra-Arab trade.; Good governance is essential for Arab countries' economic and social development, it is one of four factors cited as the most important changes needed to improve living standards throughout the Middle East and North Africa. Whether governance affects/is affected by economic development has been one of the hottest research subjects in both comparative politics and political economy in the past twenty years. Nevertheless, its effect on international trade has been largely ignored. The main purpose of this study is to utilize a gravity-type model to investigate just that.; In addition to the gravity model variables commonly used, the model includes a governance variable, which combines the six individual governance components mentioned above, and some new and rarely used variables such as variables measuring income inequality (Gini), financial development (M2GDP), whether economies are and were ever centrally planned (CPY and CPE), and whether countries have account restrictions (current and capital). This study includes data for 186 countries for 1985, 1990, 1995, 1997 & 2000, a year which no gravity studies have included. Moreover this study places special emphasis on intra-Arab trade, an area largely ignored. As such, these are my modest contributions to the literature.; The parameters of the model are estimated for World, Intra-Arab, and Arab-World trade flows using OLS. Sensitivity analyses were carried out (different assumptions, estimation techniques, and specifications) to explore the robustness of the findings. Of the seven variables that represent this study's contribution, governance is the variable that is the most significant and the most robust and that has a positive effect on all trade flows, with rule of law and control of corruption being the most important components. CPE significantly impedes Intra-Arab and Arab-World trade. Current significantly reduces only Intra-Arab trade. Capital impedes World and Arab-World trade. Concerning M2GDP, it significantly fosters only Arab-World trade.