Figure 6a shows the correlation between distances implied by coefficients for merchandise trade estimates and distances implied by estimates of other flows. The composite distance obtained from the coefficient estimates of merchandise exports are highly correlated with the distance obtained using the coefficients for the rest of the flows, with correlations above 0.9 in 6 out of the rest of the 11 types of flows. Especially high are the correlations between the distance implied by merchandise trade and people and information flows. The lowest correlation is found with portfolio long term debt, but it is still above 0.5. Finally, Figure 6b shows the correlation between the geographical distance and the distances implied by coefficients for all types of flows finding very similar results to the ones shown in Figure 6a. The highest correlation is found between
Figure 6a. Correlation between distances implied by coefficients for merchandise trade estimates and distances implied by estimates of other flows.
Figure 6b. Correlation between geographical distance and distances implied by coefficients for each type of flow.
geographical distance and the distance implied by the coefficients of merchandise exports. Likewise in the previous diagram, correlations above 0.9 are found for FDI outward stocks and the people and information flows (except patenting activity). Table A-15 in the appendix shows a matrix with the correlations between the composite distance implied by coefficients estimates for each type of flow and geographical distance.
Gravity modeling in international economics has tended to focus on trade, particularly merchandise trade: the subsection on “Gravity models beyond trade in goods” in Head and Mayer’s chapter on gravity in the Handbook of International Economics occupies less than one page out of a total of 65. But globalization is generally defined as being broader than trade in just products or even services: dictionary definitions typically refer to cross-border movements of capital, people and information as well. How well does gravity work when we look at a broad range—12, to be precise--of cross-border interactions?
This paper provides some basic descriptive analysis that aims to address that question. It finds, first of all, that simple gravity models that focus on the sizes of economies and the geographic distance between them work fairly well across the range of interactions examined, i.e., gravity applies generally to globalization, not just to trade. Second, the additional types of distance customarily included in augmented gravity models of trade tend to boost explanatory power appreciably in the context of other types of interactions as well, i.e., to apply across the board when we take a broad view of globalization. Third, while some further increases in explanatory power can be achieved by customizing the additional explanatory variables to specific types of interactions, the gains are typically quite limited. Fourth, countries that are relatively distant from each with respect to a particular type of flow also tend to be distant as far as other flows are concerned (i.e., despite variations in the estimated coefficients on the distance variables, the ranking of countries that are close in terms of composite distance versus those that are far apart does not shift very much).
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List of countries
Angola, Albania, Argentina, Australia, Austria, Belgium, Burkina Faso, Bangladesh, Bulgaria, Bolivia, Brazil, Canada, Switzerland, Chile, China, Côte d'Ivoire, Cameroon, Dem. Rep. of the Congo, Congo, Colombia, Costa Rica, Cyprus, Germany, Denmark, Dominican Rep., Algeria, Ecuador, Egypt, Spain, Ethiopia, Finland, France, Gabon, United Kingdom, Ghana, Gambia, Guinea-Bissau, Greece, Guatemala, Guyana, China, Hong Kong SAR, Honduras, Haiti, Hungary, Indonesia, India, Ireland, Iran, Israel, Italy, Jamaica, Japan, Kenya, Rep. of Korea, Sri Lanka, Luxembourg, Morocco, Madagascar, Mexico, Mali, Mozambique, Mauritania, Mauritius, Malawi, Malaysia, Niger, Nigeria, Nicaragua, Netherlands, Norway, New Zealand, Pakistan, Panama, Peru, Philippines, Poland, Portugal, Paraguay, Romania, Saudi Arabia, Sudan, Senegal, Singapore, Sierra Leone, El Salvador, Sweden, Syria, Thailand, Trinidad and Tobago, Tunisia, Turkey, Uganda, Uruguay, USA, Venezuela, Zambia, Zimbabwe.
Merchandise exports: Direction of Trade Statistics (DOTS) from IMF. For those countries classifying their partners as Yugoslavia, Czechoslovakia, Belgium-Luxembourg and USSR, country-level data were retrieved from UN Comtrade. Gaps for Botswana and Namibia are also retrieved from UN Comtrade database on exports as reported by exporters.
Services exports: UN Services trade database. Exports as reported by exporters. UN ServiceTrade data are compiled according to the recommendations contained in the Manual on Statistics of International Trade in Services. According to these recommendations, there are certain categories of services like insurance or merchanting for which negative flows can be observed: i.e. In Merchanting If the goods are resold for less than the original cost of purchase - that is, the merchant makes a loss on the sale - then a negative export of merchanting services would be recorded. (Box 6 in MSITS 2002.) Depending on the importance of the bilateral trade in those services categories, you may observe a negative value at a higher level as well (total EBOPS). These negative flows have been dropped from the analysis.
FDI outward: OECD, National Bureau of Statistics of China, the Government of the Hong Kong Special Administrative Region, the Department of Statistics Singapore, data for Brazil retrieved from Columbia FDI Profiles and data for Vietnam from http://vnr500.com.vn/2011-07-11-more-than-20-years-of-vietnam-outbound-investment.
FDI outflows: OECD, National Bureau of Statistics of China, the Government of the Hong Kong Special Administrative Region, Department of Statistics of Singapore; data for Colombia, Ukraine, India retrieved from Columbia FDI Profiles.
Portfolio equity assets: The Coordinated Portfolio Investment Survey (CPIS) from the IMF.
Portfolio long term debt: The Coordinated Portfolio Investment Survey (CPIS) from the IMF.
Emigration: Version 4 of the Global Migrant Origin Database. (http://www.migrationdrc.org/research/typesofmigration/global_migrant_origin_database.html), Data for Taiwan from Statistical Yearbook.
International Students: UNESCO Institute for Statistics and data for Taiwan from Ministry of Education Republic of China (Taiwan).
International tourists: Compendium of Tourism Statistics. UNWTO.
Outgoing phone calls: Telegeography.
Printed publication exports: UNComtrade and data for Taiwan from Bureau of Foreign Trade (http://cus93.trade.gov.tw/ENGLISH/FSCE/).
Patents: Total patent applications (direct and PCT national phase entries) in patent offices by country of origin. Source: WIPO.
As in the DHL GCI we fill missing values with linear interpolation, when the missing data was between the period and repeating the last data available when the missing data was at the end of the period analyzed.
Common official language: Dummy that takes the value 1 if both countries share the same official language and 0 otherwise. Source: CEPII.
Colonial linkage: Dummy that takes the value 1 if both countries have ever had a colonial linkage and 0 otherwise. In the original dataset, Spain and the USA seem to have a colonial linkage, while we set this country pair as never had a colonial linkage. Source: CEPII.
Trade agreement: Dummy variable that takes the value of 1 when both countries have a trade agreement. Source: CEPII updated up to 2011 with data from WTO.
Regional bloc: Dummy variable that takes the value of 1 when both countries belong to the same regional bloc of the following: MERCOSUR, ASEAN, CARICOM, EU, NAFTA and GCC. Source: CEPII updated up to 2011 with data from WTO.
Distance (logged): bilateral distances between the 25 biggest cities of both two countries, those inter-city distances being weighted by the share of the city in the overall country’s population. Source: CEPII.
Share a common border: Dummy that takes the value 1 if both countries share a common border and 0 otherwise. Source: CEPII.
Ratio of pc income (max/min) - logged: Logarithm of the ratio of the maximum and the minimum per capita gpd (maximum / minimum) (current US $). Source: World Bank
Product of gdps: Logarithm of the product of the gdps (current US $). Source: World Bank.
Product of populations: Logarithm of the product of the populations. Source: World Bank.
Religious structure index: Index obtained comparing the share of a set of religions for each pair of countries. The absolute value of the difference of the share that each religion represents in each country is obtained and summed across religions by each country pair. The list of religions considered are the ones defined as major religions in the World Christian Database: Bahais, Buddhists, Chinese folk-religionists, Christians, Confucianists, Daoists (Taoism), Hindus, Jains, Jews, Muslims, Shintoists, Sikhs, Spiritists, Zoroastrians, and Atheists and Agnostics.
Then, it has been normalized using the min max normalization. Then, the index takes values between 0 and 1. Source: own elaboration using the World Christian Database.
Common language (>9%): Dummy variable that takes the value 1 if a language is spoken by at least 9% of the population in both countries and 0 otherwise. Source: CEPII database.
Common legal origin: Dummy variable that takes the value 1 if both countries have the same legal origin and zero otherwise. Source: CEPII database.
Emigration 1960 (logged): Logarithm of the bilateral migration stocks in 1960 from the Global Bilateral Migrant data from the World Bank, which is primarily based on the foreign-born definition of migrants (Özden et al, 2011). Source: World Bank.
Common currency: Dummy variable that takes the value of one when two countries have the same currency and zero otherwise. Source: CEPII.
Product of ICT use (logged): Logarithm of the product of the sub-index on ICT use for both countries from the Global Competitiveness Report (World Economic Forum). This sub-index is composed by 4 components: the % of Individuals using Internet, Broadband internet subscriptions/100 pop, International internet bandwidth, kb/s per user and the mobile broadband subscriptions/100 pop. Source: World Economic Forum.
WHS (destination/origin) - logged: Logarithm of the ratio between the number of World Heritage Sites of the country destination of the trip and the country of origin of the tourists. Source: UNESCO.
Ratio public expend per student (destination/origin) – logged: Logarithm of the ratio of the total public expenditure per pupil in tertiary education as a % of pc income of the destination over the origin country. Public expenditure includes government spending on educational institutions (both public and private), education administration as well as subsidies for private entities (students/households and other private entities). Source: UNESCO Institute for Statistics.
Product of market capitalization (logged): Logarithm of the product of the market capitalization of both countries in current US$. Source: World Development Indicators, World Bank.
Visa requirement: dummy variable that is coded as a 1 if a visa is required for stays of 30 days or fewer and 0 if not. Source: Lawson and Lemke (2012).
Ratio of the business sophistication (exporter/importer)-logged: Logged ratio of the exporter’s and the importer’s Business Sophistication sub-index from the Global Competitiveness Report. Source: Global Competitiveness Report.
Difference of Economic Structure Index: index obtained as:
With , being the share of the agriculture over the gdp in the origin and the destination country; , being the share of the industry over the gdp in the origin and the destination country and with , the share of the service sector over the gdp in the origin and the destination country. This index has been normalized with the min – max procedure, with lower values representing countries with more similar economic structures. Source: own calculation using World Bank’s data.
Ratio of Economic Complexity Index (max/min)-logged: Logarithm of the ratio between the maximum and the minimum score between the countries in the country pair of the Economic Complexity Index. The ECI shows the probability of certain products to be developed by certain countries, or how "exclusive" would be a determined product for a given country. Source: Observatory of Economic Complexity.
Ratio of pc income (source/target) – logged: Logarithm of the ratio of the pc income (current US$) of the source country over the pc income of the target country or of the pc income in the destination over the origin country. When this variable refers to people flows, instead of using ‘source’ and ‘target’ we use ‘destination’ and ‘origin’ referring to the pc income of the destination and origin country, respectively. Source: World Bank
Ratio of the rule of law (source/target) – logged: Logarithm of the ratio between the score of the source country over the score of the target country in the Rule of Law sub-index from the World Governance Indicators. The rule of law index reflects perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence (higher values meaning more confidence in the rule of society). Source: World Governance Indicators.
Ratio of the political stability index (source/target) – logged: Logarithm of the ratio between the score of the source country over the score of the target country in the Political Stability and Absence of Violence sub-index from the World Governance Indicators. The Political Stability and Absence of Violence sub-index reflects perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including politically-motivated violence and terrorism. Source: World Governance Indicators.
Ratio of hiring regulations (source/target) – logged: Logarithm of the ratio of the score obtained by source country over the score obtained by the target country in the sub-index in hiring regulations and minimum wage of the component of labor market regulations from the Economic Freedom of the World Annual. Source: Fraser Institute.
Investment Freedom (sum-normalized): Normalized (0-1) sum of the Investment Freedom sub-index of the Index of Economic Freedom from the Heritage Foundation for both countries. Normalized to range between 0 and 1. The Investment Freedom index evaluates a variety of restrictions that are typically imposed on investment. A given amount of points are deducted from the ideal score of 100 for each of the restrictions found in a country’s investment regime. Source: The Heritage Foundation (http://www.heritage.org/index/investment-freedom).
Ratio of the innovation pillar (max/min) – logged: Logarithm of the ratio of the maximum over the minimum score in the Innovation pillar (12th pillar) of the Global Competitiveness Report. The innovation pillar contains information on the capacity for innovation, the quality of scientific research institutions, the company spending on R&D, the University-industry collaboration in R&D, the Government procurement of advanced technology products, the availability of scientists and engineers, the utility patents (hard data) and the intellectual property protection. Source: World Economic Forum.
Regional bloc (except EU): dummy variable that takes the value of 1 when both countries belong to the same regional bloc of the following: MERCOSUR, ASEAN, CARICOM, NAFTA and GCC. Source: CEPII updated up to 2011 with data from WTO.
EU: dummy variable that takes the value of 1 when both countries belong to the European Union. Source: CEPII updated up to 2011 with data from WTO.