Friends!
Hi. My gravity model estimation results throurgh the panel FMOLS, FE and RE show the elasticity of trade to GDP nearly 0.30. But always it is close to unity. My research case is the trade between Iran (an oil exporting country under sanctions) and its major trade partners. I am not sure whether the prime reason is its oil-based economy structure or sanctions.Could you pls help me to find the reasons?
Thanks
This is usual for trade in primary goods. It is even the basis of Bhagwati's impoverishing growth theory and of Thirlwall's external constraint on growth theory.
Bhagwati J.N. (1956), Immiserizing Growth: A Geometrical Note, Review of Economic Studies, vol.25, n°3, June.
Thirwall, A.P. (1979) The Balance of Payment Constraint as an Explanation of International Growth Rate Differences, Banca Nazionale del Lavoro Quarterly Review, March, pp.45-53.
Dear Joel!
Mant thanks for the time answering my question. I appreciate your valuable comment and references.
May be this elasticity could be the case for ''taking off '' periods of a national economy,as a rule of large dimension, or for another type of growth when GDP overperfomes foreign trade thanks to domestic growth enablers(factors).
Dear Gheorghe,
Thanks for your great answer. It helped me alot.
Yours,
Ehsan
Dear Sharif,
Many thanks for sharing the useful article.
Yours,
Ehsan
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