-
42 -be present in error terms of the first specification (also potentially biasing the point estimates). The results of the estimation are presented in the second column of results in table 1.B.1 (the coefficients on the fixed effects are repressed to save space
).
Table 1.B.1 Gravity Model of Trade in Services Dependent Variable:
log(export value)
Coefficient Estimates Dyadic Coefficient Estimates
Log(distance) -0.8526*** -0.9059***
(0.037) (0.029)
Contiguity 0.3454** 0.4285***
(0.168) (0.110)
Common language 0.9000*** 0.4314***
(0.124) (0.082)
Common colonial power 0.3089 0.6241***
(0.217) (0.109)
Importer STRI 0.0012
(0.003)
Exporter STRI -0.0141***
(0.003) Log(importer GDP) 1.0866***
(0.021) Log(exporter GDP) 1.0808***
(0.021)
Observations 2,533 4,925
Adjusted R-squared 0.700 0.813
Sources: Authors’ calculations using data from World Bank World Development Indicators, World Bank Trade in Services Database, World Bank Services Trade Restrictions Database, and Centre d’Études Prospectives et d’Informations Internationales (CEPII).
Note: Robust standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1.
7. The results of the gravity model show that the STRI of the exporting country matters in determining the bilateral exports of that country. Countries with more restrictive services regulatory environments are significantly less likely to export services. The relationship between the level of services restrictions in the importing country and their bilateral services imports is not found to be statistically significant. However, only data on cross-border trade (Mode 1) and consumption abroad (Mode 2) can be collected in the dataset.
The importance of FDI (commercial presence or Mode 3) as a channel for foreign providers to supply services could be one potential explanation for the insignificant coefficient on the importer STRI, since these service flows are not captured in the database.
42 ASEAN Services Integration Report
42 ASEAN Services Integration Report
8. Fixed effects (dyadic) estimations control for a wide variety of country-specific factors that affect bilateral trade flows. In other words, they control for the omitted variables that are too difficult to measure directly and that influence the ability of a country to trade, beyond what its economic mass suggests. This includes all country-specific (nonbilateral) trade policy barriers, beyond what can be measured by, for example, the STRI. In contrast, these nonmeasurable country-specific characteristics fall into the residual in the specification where GDP proxies economic mass. Figure 1.B.1 plots the residuals on the y-axis against the model’s fitted values on the x-axis for the dyadic specification, and a specification that does not correctly control for such barriers. To properly make the comparison, the STRI has been removed from the specification to see more clearly what happens when these barriers (beyond distance and common language, for example) are not accounted for. Once properly controlling for these other obstacles in the specification with fixed effects, fitted values perform better.
Figure 1.B.1 Residuals Compared to Fitted Values Estimated with GDP and Fixed Effects, 2008–09
Sources: Authors’ calculations using data from World Bank World Development Indicators, World Bank Trade in Services Database, World Bank Services Trade Restrictions Database, and CEPII.
9. This is more clearly illustrated when comparing the differences in trade potential predicted by each of the two models (the dyadic and the specification with economic mass but without the STRI). Figure 1.B.2 plots for each ASEAN country the predicted bilateral trade levels from the specification with GDP
-6-4-20246 Residuals
-5 0 5 10
Fitted values
GDP
-6-4-20246 Residuals
-5 0 5 10
Fitted values
Country Fixed Effects
-
44 -on the x-axis against the predicted levels from the specification with fixed effects (the dyadic gravity model) on the y-axis, in light gray dots. In the figure, each ASEAN country’s bilateral exports with other ASEAN countries are in black and are labeled according to their three-digit International Organization for Standardization (ISO) code. Also included in each plot is a 45-degree line. Observations lying below the 45-degree line show that the predicted levels from the specification with fixed effects are lower than the specification with GDP. Because the specification with fixed effects properly controls for country-specific barriers to trade, such a result would suggest that there exist barriers to trade at the national level that are lowering a country’s trade potential.
10. Since many observations lie below the 45-degree line, this shows that the predicted levels from the specification with fixed effects are lower than with GDP. Thus, lower potential trade after properly controlling for country-specific obstacles to trade suggests that these barriers are deterring services trade between many ASEAN countries of interest, in particular, but also with other countries in the world.
Interestingly, this does not seem to be the case, however, for Malaysia and Thailand. This result is something to be explored further, but in general could suggest that high regulatory restrictions and low regulatory governance (as captured by the STRI, for example) are dampening trade potential.
Figure 1.B.2 Predicted Trade Estimated with GDP and Fixed Effects, 2008–09
BRN KHM
MYS
PHL
SGP THA
VNM
-202468log of predicted services expots, FE (09-11)
0 2 4 6 8
log of predicted services exports, GDP (09-11)
IDN's Bilateral Relationships with ASEAN IDN
44 ASEAN Services Integration Report
44 ASEAN Services Integration Report
BRN
MYSIDN PHL
SGP
THA
VNM
-2024log of predicted services expots, FE (09-11)
-2 0 2 4
log of predicted services exports, GDP (09-11)
KHM's Bilateral Relationships with ASEAN KHM
BRN
IDN
KHM
PHL
SGP
THA
VNM
-202468log of predicted services expots, FE (09-11)
0 2 4 6 8
log of predicted services exports, GDP (09-11)
MYS's Bilateral Relationships with ASEAN MYS
-
46 -BRN
IDN
KHM
MYS THA SGP
VNM
02468log of predicted services expots, FE (09-11)
0 2 4 6 8
log of predicted services exports, GDP (09-11)
PHL's Bilateral Relationships with ASEAN PHL
BRN
IDN
KHM
MYS
PHL SGP VNM
02468log of predicted services expots, FE (09-11)
0 2 4 6 8
log of predicted services exports, GDP (09-11)
THA's Bilateral Relationships with ASEAN THA
46 ASEAN Services Integration Report
46 ASEAN Services Integration Report
Source: Authors’ calculations using data from World Bank World Development Index, World Bank Trade in Services Database, World Bank Services Trade Restrictions Database, and CEPII.
11. Figure 1.B.3 shows each ASEAN country’s actual and predicted bilateral export relationships (given by the dyadic gravity equation) in this dataset, in light gray dots. Bilateral trade between ASEAN countries of interest are in black and are labeled according to their three-digit International Organization for Standardization (ISO) code. If an observation is above the 45-degree line, the average observed export relationship during 2008–09 is more than what the gravity model predicts—on the basis of countries’
structural determinants—and the exporter is said to be overtrading with its trading partner. If an observation is below the 45-degree line, the average observed export relationship during 2008–09 is less than what the gravity model predicts—on the basis of countries’ structural determinants—and the exporter is said to be undertrading with its trading partner.
12. Gravity trade model estimates indicate that the estimated potential trade volumes predicted by structural trade determinants vary in comparison to the realized intraregional trade values between 2008 and 2009 for different countries in the region. While some countries appear to be overtrading, others undertrading, and still others trading at their potential, all ASEAN countries are shown to underexport with Malaysia and Singapore (and Malaysia and Singapore with each other). There also appears to be scope for countries such as Brunei Darussalam, Cambodia, Malaysia, and Singapore to increase services exports with select countries in the region.
13. At the same time, the results comparing the two separate specifications also show that some countries’ trade potential is dampened when the model specification accounted for unobserved country-specific characteristics. This suggests there may be limited scope for further trade integration in the region, unless structural domestic reforms are implemented in the participating countries. Thus, undertrading in services may suggest the existence of untapped potential to increase exports among these countries via the removal of trade-related obstacles. Similarly, removal of such obstacles would increase countries’ potential and could explain the result of overtrading.
BRN
IDN
KHM
PHLMYS SGP
THA
-20246log of predicted services expots, FE (09-11)
-2 0 2 4 6
log of predicted services exports, GDP (09-11)
VNM's Bilateral Relationships with ASEAN VNM
-
48 -Figure 1.B.3 Gravity Model of Trade in Services, 2008–09
MYSSGP THA
IDN PHL VNM KHM
-5051015log of actual services exports (09-11)
-5 0 5 10
log of predicted services expots (09-11)
Bilateral Relationships BRN's Bilateral Relationships BRN's Bilateral Relationships with ASEAN
Benchmarking BRN's Exports
SGP THA
PHL MYS VNM BRN
KHM
-50510log of actual services exports (09-11)
-2 0 2 4 6
log of predicted services expots (09-11)
Bilateral Relationships IDN's Bilateral Relationships IDN's Bilateral Relationships with ASEAN
Benchmarking IDN's Exports
48 ASEAN Services Integration Report
48 ASEAN Services Integration Report
THA
SGP MYS VNM PHL IDN
BRN
-50510log of actual services exports (09-11)
-2 0 2 4 6
log of predicted services expots (09-11)
Bilateral Relationships KHM's Bilateral Relationships KHM's Bilateral Relationships with ASEAN
Benchmarking KHM's Exports
SGP THA
VNM IDN PHL
KHM BRN
-5051015log of actual services exports (09-11)
-5 0 5 10
log of predicted services expots (09-11)
Bilateral Relationships MYS's Bilateral Relationships MYS's Bilateral Relationships with ASEAN
Benchmarking MYS's Exports
-
50 -SGP THA IDN MYS VNM
KHMBRN
-5051015log of actual services exports (09-11)
-5 0 5 10
log of predicted services expots (09-11)
Bilateral Relationships PHL's Bilateral Relationships PHL's Bilateral Relationships with ASEAN
Benchmarking PHL's Exports
MY IDNTHA
VNMPHL
KHM BRN
-5051015log of actual services exports (09-11)
-5 0 5 10
log of predicted services expots (09-11)
Bilateral Relationships SGP's Bilateral Relationships SGP's Bilateral Relationships with ASEAN
Benchmarking SGP's Exports
50 ASEAN Services Integration Report
50 ASEAN Services Integration Report
Source: Authors’ calculations using data from World Bank World Development Indicators, World Bank Trade in Services Database, World Bank Services Trade Restrictions Database, and CEPII.
MYSSGP VNMIDN PHL BRN KHM
-5051015log of actual services exports (09-11)
-5 0 5 10
log of predicted services expots (09-11)
Bilateral Relationships THA's Bilateral Relationships THA's Bilateral Relationships with ASEAN
Benchmarking THA's Exports
THA
IDN SGP MYS PHL
KHM BRN
-5051015log of actual services exports (09-11)
-5 0 5 10
log of predicted services expots (09-11)
Bilateral Relationships VNM's Bilateral Relationships VNM's Bilateral Relationships with ASEAN
Benchmarking VNM's Exports