The Bilateral And Multilateral Border Effect Of Regional Economic And Trade Organizations Based On Gravity Model

In general,the empirical gravity equation fits real-world data well,but it lacks the basis of theoretical background.Referring to the experience of structural gravity equation derived from the CES constant elasticity function and using Taylor method,this paper builds a discrete gravity equation,which is based not only on experimentalism but also on micro foundation to study the influence of border effect of regional economic and trade organizations on the scale of exports.The applications of empirical gravity equation usually focus on bilateral trade relations only.However,the international trade situation involves multilateral trade relationships.Any model considers bilateral trade relations only is incomplete.Therefore,using the structural gravity equation to discuss the influence of bilateral and multilateral terms of trade on trade volume is a better measure for this issue.In order to meet the reality of international trade to the greatest extent,this paper collects data of 136 reporting countries and 201 correspondent countries in 2015,and constructs an instrumental variable composed of natural endowments instead of trade dependence as the representative of trade openness.This paper focus on the influence of both bilateral trade conditions and multilateral trade conditions on trade volume.Bilateral trade conditions main includes bilateral economic scale,bilateral geographical distance,bilateral trade openness,bilateral dummy variable of EU and bilateral dummy variable of ASEAN,while multilateral trade conditions main includes multilateral distance,multilateral trade openness,multilateral border effects of EU,and multilateral border effects of ASEAN.It is proved that the estimated elasticity difference between domestic and foreign economic scale indicates that there may be a local market effect all over the world.The larger the scale of the economy is,the more the economy exports.The conclusion about bilateral geographical distance in this paper is the same as general research.The greater the geographical distance between the two sides is,the more the trade cost increases.This paper also proves that geographical distance is not exactly equal to physical distance,but also includes information cost and cultural differentiation.The geographical distance impact on trade cost is nonlinear so that the relationship between the geographical distance and the trade flow is a U-curve.From the perspective of multilateral distance,it shows that an increase of the distance between the trade partner and the rest of the world will raise the bilateral trade volume.This reveals that the multilateral distance does significantly affect the trade volume between trade partners.The first attempt of this paper provides a strong support to introduce both bilateral terms of trade and multilateral terms of trade into this research.In this paper,the instrumental variable of trade openness is significant in both bilateral and multilateral situation.A high degree of bilateral trade openness will lead to the increase of export while a high degree of multilateral trade openness will reduce the scale of export.This result meets the requirements of theoretical assumption and economic logic.The complex influence of bilateral border effect and multilateral border effect is an issue to be studied.It is found by this paper that the difference of border effect of regional economic and trade organization is due to the different development degree and the different level in global value chain.The bilateral border effect shows that if there exists trade between countries in EU,it will reduce the scale of trade,and on the other hand,if there exists trade between countries in ASEAN,it will increase the scale of trade.This contradiction is not entirely consistent with economic intuition,but can be explained by the great difference between EU and ASEAN.The differentiated trade policy of the two organizations will lead to unequal bilateral trade effects in different trade organizations.Multilateral trade border effect is intuitively regarded as trade impedance,but this paper finds that the multilateral trade border effect is positively related to the bilateral trade scale whether in EU or ASEAN.This paper defines multilateral trade border effect as the link level of the country with regional or global value chain.The tighter the link level is,the more likely the country is to be a trade bridge to global value chain.Therefore,the multilateral trade border effect,link level with global value chain,can be a pivot to promote international trade by reducing trade cost and optimizing the distribution of factor endowments.Finally,this paper combines the bilateral and multilateral border effects together and shows that there will be loss of trade volume in some degree due to the border effect of EU and ASEAN.Generally,if a specific ASEAN member leaves ASEAN,it will cause a great reduction of trade volume from the specific ASEAN member to other ASEAN countries.This phenomenon is also observed in EU,but the reduction of trade volume in EU is less than in ASEAN.Based on the structural gravity model with theoretical foundation,this paper makes a wide range of attempts to study terms of bilateral and multilateral trade and offers some new ideas.From the perspective of empirical study,most of the estimated elasticity of bilateral and multilateral trade conditions is quite significant.From the perspective of economic logic,the result of bilateral trade conditions is relatively common in general gravity model while the study of multilateral conditions in this paper is creative and innovative,which may be beneficial to the research about bilateral and multilateral conditions.