THE IMPACT OF INTERNATIONAL ENERGY PRICES ON WORLD TRADE: PANEL EVIDENCE OF GRAVITY MODELS FOR SELECTED COUNTRIES

Year 2021, , 946 - 974, 21.12.2021

Memduh Alper Demir , Utku Utkulu

https://doi.org/10.36543/kauiibfd.2021.039

Abstract

The aim of this article is to examine the impacts of prices of energy and non-energy goods on world trade by including some variables that affect trade for selected countries within the framework of relative prices. The relevant literature confirms that the bilateral trade is theoretically analyzed by using the gravity models. The theoretical gravity models can be empirically applied by using the various panel regression techniques. In this study, three types of panel regression techniques are employed to define the effects of independent variables in the case of trade as the dependent variable. These are Stochastic Frontier, Random Effects, and Fixed Effects Filtered Estimator techniques. According to our panel regression findings, the price increases in the index of energy goods have negative effects on the exports, resulting in the terms of trade being against the countries in this case. Findings suggest that socio- economic policies preventing energy prices from rising need to be developed. Raising the supply to meet the increasing demand could be one of the major policies. Considering the other variables in the model, empirical evidence suggests that world trade volume can be increased not only by strengthening growth policies, ensuring competitiveness in the market, and providing effective logistics management but also by ensuring cultural cooperation, developing business partnerships among the similar income-level countries, and increasing and/or diversifying energy supply.

Keywords

World trade, energy prices, gravity models of bilateral trade, panel random effects, fixed effects filtered and stochastic frontier estimation methods

THE IMPACT OF INTERNATIONAL ENERGY PRICES ON WORLD TRADE: PANEL EVIDENCE OF GRAVITY MODELS FOR SELECTED COUNTRIES

Abstract

Bu makalenin amacı, enerji fiyatları ile enerji dışı malların fiyatlarının, nispi fiyatlar çerçevesinde ve ticareti etkileyen diğer bazı değişkenler de ilave edilerek, dünya ticareti üzerindeki etkisini seçilmiş ülkeler için incelemektir. İlgili literatür, iki yönlü ticaretin çekim modelleri kullanılarak teorik olarak analiz edildiğini ortaya koymaktadır. Teorik çekim modeli analizi ampirik olarak çeşitli panel regresyon teknikleri ile uygulanabilmektedir. Araştırmada, bağımsız değişkenlerin bağımlı değişken olan ticaret üzerindeki etkisini belirlemede üç tür panel regresyon tekniği kullanılmıştır. Bunlar, stokastik sınır, rassal etkiler ve filtrelenen sabit etkiler tahmincisi teknikleridir. Elde edilen panel regresyon bulguları, enerji malları fiyat endeksindeki artışın ihracat üzerinde negatif etkide bulunduğunu, bu durumda da dış ticaret hadlerinin ilgili ülkelerin aleyhine olduğunu göstermektedir. Bulgular, enerji fiyatlarının yükselmesini engelleyecek sosyo-ekonomik politikalar geliştirilmesi gerektiğine işaret etmektedir. Artan talebi karşılamak için arzı arttırmak, temel politikalardan birisi olabilir. Modeldeki diğer değişkenler dikkate alındığında, elde edilen ampirik bulgular, büyüme yönlü politikaların arttırılması, piyasalarda rekabetçiliğin sağlanması ve etkili lojistik yönetiminin gerçekleştirilmesinin yanı sıra kültürel iş birliğinin sağlanması, benzer gelir seviyesindeki ülkelerin iş ortaklıklarının geliştirilmesi, enerji arzının arttırılması ve/veya çeşitlendirilmesi ile dünya ticaret hacminin artırılabileceğini göstermektedir.

Keywords

Dünya ticareti, enerji fiyatları, iki-yönlü ticaretin çekim modelleri, panel rassal etkiler, filtrelenen sabit etkiler ve stokastik sınır tahmin yöntemleri

References

• Abidin, I. S. Z., Haseeb, M., Azam, M., & Islam, R. (2015). Foreign direct investment, financial development, international trade and energy consumption: Panel data evidence from selected ASEAN countries. International Journal of Energy Economics and Policy, 5(3), 841-850.
• Abu Bader, S., & Abu Qarn, A. S. (2010). Trade liberalization or oil shocks: Which better explains structural breaks in international trade ratios?. Review of International Economics, 18(2), 250-264.
• Aigner, D., Lovell, C.A.K., & Schmidt, P. (1977). Formulation and estimation of stochastic frontier production functions. Journal of Econometrics, 6(1), 21-37.
• Akman, E., & Bozkurt, I. (2016). On the mixed indirect effects of oil prices on international trade. OPEC Energy Review, 40(4), 374-396.
• Allegret, J. P., Mignon, V., & Sallenave, A. (2015). Oil price shocks and global imbalances: Lessons from a model with trade and financial interdependencies. Economic Modelling, 49, 232-247. Allen, T., & Arkolakis C. (2016). Elements of advanced international trade. 10 Ekim 2017 tarihinde http://www.econ.yale.edu/~ka265/teaching/GradTrade/notes/ClassNotes.pdf adresinden erişildi.
• Anderson, J. E., & Van Wincoop, E. (2003). Gravity with gravitas: A solution to the border puzzle. American Economic Review, 93(1), 170-192.
• Anna, C., Antonello, D., & Angelo, P. (2014). A panel data approach to evaluate the passenger satisfaction of a public transport service. Procedia Economics and Finance, 17, 231-237.
• Backus, D. K., & Crucini, M. J. (2000). Oil prices and the terms of trade. Journal of International Economics, 50(1), 185-213.
• Battese, G. E.,& Coelli, T. J. (1988). Prediction of firm-level technical efficiencies with a generalized frontier production function and panel data. Journal of Econometrics, 38(3), 387-399.
• Battese, G.E., & Coelli, T. J. (1992). Frontier production functions, technical efficiency and panel data: With application to paddy farmers in India. The Journal of Productivity Analysis, 3(1), 153-169. Battese, G.E., & Coelli, T. J. (1995). A model for technical inefficiency effects in a stochastic frontier production function for panel data. Empirical Economics, 20(1), 325-332.
• Bergstrand, J. H. (1989). The generalized gravity equation, monopolistic competition, and the factor-proportions theory in international trade. The Review of Economics and Statistics, 71(1), 143-153.
• Bergstrand, J. H., Egger, P., & Larch, M. (2013). Gravity redux: Estimation of gravity-equation coefficients, elasticities of substitution, and general equilibrium comparative statics under asymmetric bilateral trade costs. Journal of International Economics, 89(1), 110-121.
• Bridgman, B. (2008). Energy prices and the expansion of world trade. Review of Economic Dynamics, 11(4), 904-916.
• Chan, H. R., Manderson, E., & Zhang, F. (2017). Energy prices and international trade: Incorporating input-output linkages. 10 Ocak 2018 tarihinde http://documents.worldbank.org/curated/en/984751496166477456/pdf/WPS8076.pdf adresinden erişildi.
• Chen, S. S., & Hsu, K. W. (2013). Oil price volatility and bilateral trade. The Energy Journal, 34(1), 207-229.
• Cornwell, C., Schmidt, P., & Sickles, R. C. (1990). Production frontiers with cross-sectional and time-series variation in efficiency levels. Journal of Econometric, 46(1-2), 185-200.
• Debreu, G. (1951). The coefficient of resource utilization. Econometrica, 19(3), 273–292.
• Demir, M.A. (2019). Uluslararası enerji fiyatlarının dünya ticareti üzerine etkisi. Yayınlanmamış doktora tezi, Dokuz Eylül Üniversitesi, İzmir.
• Farrell, M. J. (1957). The measurement of productive efficiency. Journal of the Royal Statistical Society. Series A (General), 120(3), 253–290.
• Fried, H. O., Lovell, C. K., Schmidt, S. S., & Schmidt, S. S. (2008). The measurement of productive efficiency and productivity growth. USA: Oxford University Press.
• Greene, W.H. (2008). Econometric analysis. USA: Pearson.
• Greene, W. (2013). Export potential for US advanced technology goods to India using a gravity model approach. US International Trade Commission, Working Paper, (2013-03B), 1- 43.
• Huntington, H. G. (2015). Crude oil trade and current account deficits. Energy Economics, 50, 70-79.
• Kalirajan, K. (2008). Gravity model specification and estimation: Revisited. Applied Economics Letters, 15(13), 1037–1039.
• Kilian, L., Rebucci, A., & Spatafora, N. (2009). Oil shocks and external balances. Journal of International Economics, 77(2), 181-194.
• Koopmans, T. C. (1951). An analysis of production as an efficient combination of activities. T.C. Koopmans (Ed). in Activity analysis of production and allocation (pp. 33–97). NewYork: John Wiley&Sons.
• Kumar, S., & Ahmed, S. (2015). Gravity model by panel data approach: An empirical application with implications for South Asian countries. Foreign Trade Review, 50(4), 233 249.
• Kumbhakar, S. C. (1990). Production frontiers, panel data, and time-varying technical inefficiency. Journal of Econometrics, 46(1-2), 201–211.
• Lee, Y. H., & Schmidt, P. (1993). A production frontier model with flexible temporal variation in technical efficiency. Harold O. Fried, C.A. Knox Lovell &Shelton S. Schmidt. (Eds.). in The measurement of productive efficiency: techniques and applications (pp. 237-255). NewYork: Oxford University Press.
• Lutz, C., & Meyer, B. (2009). Economic impacts of higher oil and gas prices: The role of international trade for Germany. Energy Economics, 31(6), 882-887.
• Mayer, T., & Zignago, S. (2011). Notes on CEPII’s distances measures: The geodist database. 15 Ocak 2018 tarihinde http://www.cepii.fr/PDF_PUB/wp/2011/wp2011-25.pdf adresinden erişildi.
• Meeusen, W., & van Den Broeck, J. (1977). Efficiency estimation from cobb douglas production functions with composed error. International Economic Review, 18(2), 435-444.
• Pesaran, M. H., & Zhou, Q. (2018). Estimation of time-invariant effects in static panel data models. Econometric Reviews, 37(10), 1137-1171.
• Pitt, M., & Lee, L. F. (1981). The measurement and sources of technical inefficiency in the Indonesian weaving industry. Journal of Development Economics, 9(1), 43-64.
• Rafiq, S., Sgro, P., & Apergis, N. (2016). Asymmetric oil shocks and external balances of major oil exporting and importing countries. Energy Economics, 56, 42- 50.
• Raheem, I. D. (2017). Asymmetry and break effects of oil price-macroeconomic fundamentals dynamics: The trade effect channel. The Journal of Economic Asymmetries, 16, 12-25.
• Sato, M., & Dechezleprêtre, A. (2015). Asymmetric industrial energy prices and international trade. Energy Economics, 52(1), 130-141.
• Starck, S. C. (2012). The theoretical foundation of gravity modelling: What are the developments that have brought gravity modelling to mainstream economics. Unpublished master dissertation, Copenhagen Business School Department of Economics, Copenhagen.
• Stevenson, R. E. (1980). Likelihood functions for generalized stochastic frontier estimation. Journal of Econometrics, 13(1), 57-66.
• Sumani, I.I. (2015). Determinants of Ghana’s trade flows in economic community of West African States: Application of the gravity model. Unpublished master dissertation. İstanbul Technical University, İstanbul.
• Szewerniak, W., Xu, Y., & Dall'erba, S. (2016). The effects of oil price on regional trade in the United States. 10 Ekim 2017 tarihinde https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2863943 adresinden erişildi.
• Timilsina, G. R. (2015). Oil prices and the global economy: A general equilibrium analysis. Energy Economics, 49, 669-675.
• Welsch, H. (2008). Armington elasticities for energy policy modeling: Evidence from four European countries. Energy Economics, 30(5), 2252-2264.
• Wooldridge, J.M. (2016) Introductory Econometrics A Modern Approach. USA:Cengage.
• Yang, S. and Martinez-Zarzoso, I. (2014). A Panel Data Analysis of Trade Creation and Trade Diversion Effects: The case of ASEAN–China Free Trade Area. China Economic Review. 29: 138-151.
• Zhang, N., Zhou, P. and Choi, Y. (2013). Energy efficiency, CO2 Emission Performance and Technology Gaps in Fossil Fuel Electricity Generation in Korea: A meta-frontier Non-Radial Directional Distance Function Analysis. Energy Policy. 56: 653-662.
• Zhao, X., Li, T., & Zhai, D. (2016). Effects of oil price volatility on bilateral trade between China and the GCC. L. Lester (Ed). in Energy relations and policy making in Asia (pp. 11- 30). Singapore: Palgrave Macmillan.