Study On The Effect Of Market Similarity On Russian Oil Export

Trade relations play a critical role in the economic development of all the countries.Countries try to improve trade relations and thus enhance their efficiency.Scholars agree that trade between countries is not homogeneous,and the consistency of trade relations tends to vary.A number of factors contribute to the improvement and deterioration of trade relations,making them possible or impossible.Among these factors,market similarity plays a prominent role for the development of export trade relations.The main objective of this dissertation is to explore the influence of market similarity factors on export flows and margins of export,within the context of specific markets and countries.Many studies have attempted the analysis of trade in industrial commodities and consumer goods in the context of market similarities;only a handful,however,have investigated trade in natural resources,especially crude oil and oil products,between countries.Crude oil and oil products are still one of the most traded and most important products for economic development.Russia is one of the countries that enjoy a significant influence on the world oil(crude oil and oil products)market.Currently,Russia produces 5 to 10 percent of oil consumed worldwide,and thus ranks amid the main policy makers and market actors.Based on these facts,we chose to study Russian oil export in the context of market similarities between Russia and the main export markets for the Russian crude oil and oil products.For this dissertation,trade theories based on the presumptions of constant elasticity of substitution(CES)conditions and monopolistic competition were chosen as the theoretical foundation.Two theoretical models were employed:one of them was the export flow and the other one export flow with a combination of margins of export trade.Theoretical gravity equation was chosen as the foundation for the analysis of export flows between countries,and it was further applied for the development of empirical tests.In theoretical models,the influence of trade costs was predicted via institutional influence on trade flows and on both margins of export trade.For empirical tests,gravity equations were estimated through PPML methodology,that helped to analyze zero flows and to partially manage the heteroscedasticity influence;besides,SFA methodology was applied,that also helped to manage heteroscedasticity influence and evaluate export efficiency.In this dissertation,a set of 25 countries that comprise Russia’s main export markets consuming 80 to 90 percent of its export of crude oil and oil products is examined.The analysis of Russia-importer country pairs covers the period of 19952018.This study is an attempt to understand the influence of market similarities on various aggregated export flows,using the product set belonging to HS 27.Product flow on 6-digit level is analyzed.This study analyzes the influence of various types of similarities,e.g.institutional similarities,geographical similarities,economic similarities and historical similarities,on export flows.A series of empirical tests was performed,they helped to understand the influence of similarities on the export flow,margins of export flow and export potential.It also studied the network of oil export/import relations and the influence of market similarity parameters on the position of each country in the network.First,the study examined the influence of market similarity on the margins of trade.Intensive margins(IM)and extensive margins(EM)were calculated and analyzed for each of the countries within the selected period.For the estimation of the influence of various types of market similarities on the margins of export,a series of variables were constructed.The similarities of institutional environment in Russia and the importer countries were proposed via the application of the series of Worldwide Governance Indicators(WGI)(institutional similarities).Besides,the following variables presented by the series of similarities were applied:common border(geographic similarities),similarities in GDP per capita(economic similarity)and Soviet Bloc(historical and cultural similarities due to the membership in the Soviet Bloc).Estimation results suggested that geographic similarity exerts a positive influence on EM,while the influence of historical and cultural similarity on both margins seems to be statistically insignificant.The influence of economic similarities on EM is statistically insignificant,and exerts a close-to-zero statistically significant negative influence on IM.Institutional similarity based on the average WGI,exerts a statistically insignificant influence on EM,and a statistically significant negative influence on IM.Various parts of WGI show a variety of influences on the margins.The result shows that the influence of market similarities on these margins seems to vary on quantitative and qualitative levels.As for the margin analysis for the product sets under consideration(one product set includes crude oil and oil products,while the other one includes oil products)for each country,IM seemed to play a more important role in export rather than EM.Market similarities between the exporters and importers in the product sets in question validate the influence of fixed and variable costs on the intensive and extensive margins.Second,the influence of various factors of market similarities on export flow and on the export potential of Russia’s main markets was examined.Within the framework of this part of our analysis,Linder’s hypothesis on the type of export relations between countries(inter-industry or intra-industry)was tested,and Russian oil export potential was researched for the case of export flow that includes crude oil and oil products.We have discovered a statistically significant and positive influence of the market similarity factors presented by geographic similarity,while series of institutional similarity factors(similarities in WGI,such as control of corruption,government effectiveness and average level of WGI)seemed to exert a negative influence on export flows.The statistically insignificant influence of the economic similarities cancels the applicability of the assumptions of Linder’s hypothesis to these types of export relations in oil trade.The results of the estimation of the technical efficiency of the relations between the actual oil export and the potential oil export at the same point of time for the Russian oil export,lead to believe that,in all the investigated directions of export,except Belarus,Russian oil export has a stable major potential for increase.Third,we have explored the network-based analysis of Russian oil export with study of market similarities influence on the position of a country within the suggested network.For that,the same set of importer states,plus some other countries that also exported/imported crude oil and oil products to/from these countries(set of importer states),was applied.The characteristics that define a country’s position in the oil trade network are presented by the series of centralities that were calculated and researched;besides,the influence of market similarities on these centralities was considered.The results of the calculations of centralities for all the countries are the following:in-degree,out-degree and degree centralities featured the tendency for growth,while closeness centralities featured a tendency for decrease.Betweenness centrality and eigenvector centrality show the tendency for growth for some countries,while for the others it shows the tendency for decrease.The influences of market similarities on centralities tend to vary in quality and statistical significance.Historical similarity exerts a negative influence on the all centralities except for the closeness centrality,where the influence is positive.Economic similarity exerts a negative influence on closeness centrality and positive influence on degree and betweenness centralities.Institutional similarity,defined through the similarity in average level of WGI,exerts a negative influence on closeness and betweenness centralities,and a positive influence on in-degree centrality.Various parts of WGI reveal varied influences on centralities.The results of influence of various market similarity parameters on the position of a country in the network of oil trade prove the influence of fixed and variable costs on trade flows.The results of this study can be applied for policy recommendations,based on the estimations achieved in our empirical models.It seems important to improve the quality of certain institutions,especially as far as the control of corruption and the role of the power of contract are concerned.Regarding IM and EM,it is recommended to rely on the existing export relations due to the prevalence of IM.Based on the network analysis and analysis of export potential,this study suggests that the existing export relations should be intensified.Subsequent studies might offer a wider set of institutional variables and apply them for market similarity analysis.They might want to estimate and compare the influence of various market similarity factors on the other exporters of crude oil and oil products,and to perform comparative analysis of the influence of market similarities on various exporters of crude oil and oil products in the current markets.Subsequent network analysis might offer the comparison of the export networks of crude oil,oil products,coal and natural gas in the context of network formation and main network parameters,such as centrality and modularity;this might help to compare the possible network similarities for various products.