Trade Performance and Potential of the Philippines: An Application of Stochastic Frontier Gravity Model

Roperto Deluna

MPRA Paper from University Library of Munich, Germany

Abstract: This study was conducted to investigate the issue of what Philippine merchandise trade flows would be if countries operated at the frontier of the gravity model. The study sought to estimate the coefficients of the gravity model. The estimated coefficients were used to estimate merchandise export potentials and technical efficiency of each country in the sample and these were also aggregated to measure impact of country groups, RTAs and inter-regional trading agreements. Result of the study shows that technical efficiency for all sample countries is relatively large with standard deviation from the mean of 35.02% suggesting that the frontier is not so distant. The most efficient countries in the sample which recorded more than 90% efficiency were Canada, Australia, New Zealand, USA, Singapore, Denmark, Hongkong, Sweden and UK. In terms of country groups, RTA and Inter-regional trading agreements, APEC recorded as the most efficient trade agreement of the Philippines. The Philippines was also able to established strong link among countries in East Asia, members of AFTA. ASEAN and EU posed export potential. In a country level, China and members of the ASEAN such as Vietnam, Indonesia, Thailand, Cambodia and Malaysia posed the highest export potential for merchandise exports. The significant determinants of these potentials are the expanding market of developing economies and lower trade cost. Then dominance of APEC countries in trade efficiency was verified by the result of the trade inefficiency effect model. Factors reducing technical inefficiencies were membership to APEC, reduction of corruption, and freer business environment. Membership to ASEAN and WTO turns out insignificant in reducing trade inefficiencies of the Philippine exports to member countries.

Keywords: Merchandise exports; Gravity; Stochastic; export potential; Philippine Trade (search for similar items in EconPapers)
JEL-codes: F0 F1 F13 F14 F15 F4 F47 (search for similar items in EconPapers)
Date: 2013-04-30
New Economics Papers: this item is included in nep-eff, nep-int and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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