An augmented gravity model of OECD bilateral exports.
Institutions, infrastructure, and globalization, and how each moves bilateral aggregate exports between 36 OECD economies over the 1995-2018 panel. A traditional gravity equation extended with state fragility, an innovation index, and economic + political globalization indices.
Seven hypotheses on what moves bilateral exports.
The paper tests seven hypotheses against the OECD panel: three on standard trade-policy variables (EU, RTAs, common currency), four extending the gravity model into institutional quality, infrastructure, globalization, and tariff barriers.
What the data actually said.
Estimated with fixed-effects OLS over 1995-2018, with all specifications passing the RESET test for misspecification. The results split cleanly into three buckets: robust positives, expected negatives, and the perplexing.
Economic & political globalization
Both globalization indices contribute substantially and consistently to bilateral exports across the full and recent (2011-2018) periods. The paper's headline contribution.
Innovation index
An exporter's innovation capacity has a significant, positive impact on bilateral aggregate exports.
Road infrastructure quality
Among infrastructure indicators, road quality stands out with a substantial positive effect on the dependent variable.
EU, RTAs, common currency
Both reporter and partner being EU or RTA members raises bilateral exports; common currency raises them further still.
State fragility
Higher state fragility on the exporter side meaningfully depresses bilateral exports; consistent with the institutions-as-trade-cost view.
Political stability & market openness
Both come in negative; the most perplexing results. Possible explanation: stable, open exporters service larger domestic markets and source more inputs locally, dampening measured export volume.
What's new here.
Most gravity-model papers stop at GDP, distance, RTAs, and currency. This thesis extends the equation with three under-tested exporter-side variables and re-runs everything on a shorter, more recent sub-period.
Contribution
- Globalization, end-to-end. First gravity-model treatment of the KOF economic and political globalization indices on OECD exports; both come out significant and positive.
- State fragility added. Brings a fragility dimension to a literature that traditionally proxies institutions with WGI / Heritage indicators alone.
- Innovation as a determinant. Tests the Global Innovation Index directly against bilateral exports; significant, positive, and robust.
- Two windows, not one. Re-runs the full model on the post-crisis sub-period 2011-2018 to surface effects that wash out over longer panels.
Method
- Augmented gravity equation with country-pair and year fixed effects, OLS estimation.
- Misspecification handled. Every specification clears the RESET test before being interpreted.
- Robustness table swaps in alternate fixed-effect structures (country-time-varying vs. time-invariant pair) to stress-test EU and RTA coefficients.
- Standard controls retained: GDP, distance, contiguity, common language, colonial ties, FDI stock, exchange rate, EU, common currency.
- Sample
- OECD bilateral pairs
- Period
- 1995 to 2018
- Estimator
- Fixed-effects OLS
- Diagnostics
- RESET-test passing
The thesis, in full.
All 78 pages: abstract, literature review, methodology, results tables, robustness checks, appendices and references. The Erasmus repository hosts the canonical PDF.
The full PDF is hosted by Erasmus University Rotterdam.
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