The Structural Gravity Model and Its Implications on Global Forest Product Trade

Abstract

The gravity model of trade is one of the most common approaches in modern econometrics. In its basic form, the model assumes that income and distance between two partners most likely play a major role in the occurrence of trade. Despite the long history of the gravity model and its high, universal explanatory potential, its application for the forest sector is not broad and refers only to the traditional definition of the gravity approach. However, this traditional approach is not able to explain all aspects of trade at a disaggregated sector level. Consequently, the present study aims to close this research gap and reveal influencing factors for the appearance and the intensity of forest product trade by applying the structural gravity approach. This is done via linear and non-linear estimation methods for the forest sector on the whole and for thirteen forest products in detail. Three major results were found: first, the traditional gravity approach overestimates the impact of the overall income on forest sector trade. Second, the appearance of wood market trade is not always influenced by the same factors as the quantity traded. Third, with increasing processing level, determinants of forest product trade seem to be influenced by different factors.