Competing-destinations gravity model applied to trade in intermediate goods

ABSTRACT

The competing-destinations formulation of the gravity model ensues from the fact that unlike the classic version, this approach explicitly acknowledges the interdependence of the flows between a set of alternative countries. This article applies the competing-destinations gravity model to the analysis of trade in intermediate goods. The results of the model were then tested empirically with an international input–output data set and using the Poisson pseudo-maximum-likelihood estimator. The empirical results suggest that the analytical model can explain trade in intermediate goods. Indeed, as predicted, import of intermediate goods is increasing in the importing country’s demand for inputs, in the competitiveness of the exporting country, and decreasing in distance and competition posed by alternative countries.

KEYWORDS:

• Gravity model
• trade in intermediate goods
• Poisson regression

JEL CLASSIFICATION:

• C31
• F14

Disclosure statement

No potential conflict of interest was reported by the author.

Additional information

Funding

Financial support from Fundação para a Ciência e Tecnologia, under, Business Research Unit (BRU-IUL) project UID/GES/00315/2013 is gratefully acknowledged