Research and Publications
International Trade, OECD Membership, and Religion
2006, Open Economies Review
Michele U. Fratianni, Heejoon Kang
Transaction costs in trade gravity equation are proxied by the distance that separates two trading partners, under the assumption that the distance elasticity is the same across all trading partners. We show that distance elasticity, however, critically depends on whether trading partners are industrial countries (i.e., members of the OECD) or share same religion. These heterogeneities are both statistically and economically significant. For instance, expected trade flows are the largest when an OECD member trades with a non-member and both are non-religious. Expected trade flows fall as much as by 62.9% between two non-religious, non-OECD members. Expected bilateral trade drops by 48.1% when both countries in the pair are OECD members while one is Christian and the other is Islamic. Both religion and OECD membership significantly affect the typical transaction costs implied by the gravity equation.
Fratianni, Michele U., and Heejoon Kang (2006), "International Trade, OECD Membership, and Religion," Open Economies Review, Vol. 17 (4-5): 493-508.
gravity equation, OECD membership, religion, trade flows, transaction costs