Abstract
This research study analyzes the effects of similarities in economic size and institutional level on bilateral trade. It is interested in whether similarities in country size and at the institutional level encourage enlarging volumes of bilateral trade between countries. Using panel data of the bilateral trade of Azerbaijan with 50 different countries from 1995 to 2012, estimating by random and fixed effects, as well as the Poisson Pseudo Maximum Likelihood (PPML), the study finds that similarity of income size is necessary for increasing bilateral trade across countries. The main finding is that high quality rule of law and more control of corruption boost confidence in international trade, therefore, reliable countries tend to trade more between each other, and less with unreliable countries. Unreliable countries trade more with each other, and less with reliable ones. A large divergence in institutional quality performance reduces bilateral trade across countries. The results show that a long-term contract is one of the main indicator for natural resource exports; therefore distance might not have significant impact on bilateral trade relationships.
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Notes
WTO welcomed the Russian Federation as its 156th member on 22 August 2012.
Azerbaijan’s economy faced sharp devaluation of the manat on 21 February 2015. Even thought CBAR promised that devaluation would be 12–14 %, it ended at 34 %, causing panic in the society and undermining the credibility of CBAR. The main question is why CBAR did not choose gradual deprecation instead of a sharp decrease on the value of the manat against to the US dollar and Euro. Dramatic decreases in oil prices lead to a huge fiscal deficit, considering that budget revenue mostly related to oil income and crude oil exports, depreciation was the main reason for the sharp depreciation of the manat. Further, devaluation in the national currencies of Azerbaijani major trade partners (Russia, Turkey, Ukraine and Georgia) caused more difficulties on Azerbaijan export.
There are no diplomatic relations between Azerbaijan and Armenia due to conflict over the Nagorno-Karabakh region
The State Statistical Committee of the Republic of Azerbaijan database
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Acknowledgments
I thank Hezi Eynalov and all seminar participants at Qafqaz University in Baku and for their helpful comments.
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Appendices
Appendix A: Data descriptions
Appendix B: The countries of the sample
Appendix C: The standardisation of similarity index
Appendix D:
Appendix E:
Appendix F:
Appendix G:
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Zeynalov, A. The gravity of institutions in a resource-rich country: the case of Azerbaijan. Int Econ Econ Policy 14, 239–261 (2017). https://doi.org/10.1007/s10368-016-0337-3
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DOI: https://doi.org/10.1007/s10368-016-0337-3