Impact Of Trade Facilitation On Extensive Margin: A Ppml Panel Gravity Equation Approach

Abstract

This paper examines the link between trade facilitation and extensive margin for 111 countries over the period of 2008 to 2014. The study employs a panel pseudo-maximum likelihood (PPML) method to estimate the model. We measure trade facilitation using more comprehensive Enabling Trade Index (ETI); market access, border administration, transport and communication infrastructure, and business environment. The novelty in using ETI is that the index takes into account the effects of factors, policies, and services by facilitating the free flow of goods over borders to the destination. The paper has four major findings. Our results highlight that better trade facilitation leads the countries to export; import became more diversified with a wider range of products. Second, improvement in the business environment and transport and communication infrastructure in trade facilitation yield the highest return in terms of increasing the number of exported products. Third, border administration as the second most important factor in affecting extensive margin. Finally, despite economic integration, there is a considerably stronger effect on the side of exporter's trade facilitation, which shows large unexploited gains, to be reaped on the side of exporter countries trade facilitation.