The Economic and Social Review, Vol. l6,No.
1, October 1984,pp. 19-30
The Geographical Pattern of Irish Foreign
Trade:
Test of a Gravity Model*
JIM
FITZPATRICK,*
Jim Fitzpatrick
and Associates,
Dublin.
Abstract: T h i s article assesses the extent to w h i c h e c o n o m i c approaches to the geographical pattern o f foreign
trade explain the pattern o f Irish merchandise imports a n d exports. T h e a p p r o a c h adopted is that o f a
"gravity" m o d e l of foreign trade flows. T h i s hypothesises that the geographical pattern of a country's trade is
determined by the e c o n o m i c size o f trade partners a n d their distance apart. T h e "preference similarity"
a p p r o a c h , w h i c h hypothesises that trade in manufactured goods is concentrated a m o n g countries with
similar incomes a n d tastes, is also examined. T h e article finds evidence in favour o f the gravity a p p r o a c h but
not the preference similarity hypothesis.
I
T
he
geographical
INTRODUCTION
concentration
of
Ireland's
foreign
trade
on
the
i n d u s t r i a l i s e d c o u n t r i e s i n g e n e r a l , a n d o n t h e U K i n p a r t i c u l a r , is w e l l
r e c o g n i s e d . I n 1983 I r e l a n d ' s E E C p a r t n e r s a c c o u n t e d f o r 69 p e r cent o f its
m e r c h a n d i s e e x p o r t s a n d 67 p e r c e n t o f m e r c h a n d i s e i m p o r t s . T h i s c a n b e seen
f r o m T a b l e 1. T h e ' U K shares i n I r i s h e x p o r t s a n d i m p o r t s i n 1983 w e r e 37 p e r
cent a n d 45 p e r cent, r e s p e c t i v e l y . A l l d e v e l o p e d c o u n t r i e s h a d a c o m b i n e d
share o f 88 p e r c e n t o f I r e l a n d ' s e x p o r t s i n 1983, a n d a 92 p e r c e n t share o f its
i m p o r t s . T h e c o u n t e r p a r t o f t h i s d o m i n a n c e b y t h e i n d u s t r i a l i s e d c o u n t r i e s is
t h e s m a l l share a c c o u n t e d f o r b y t h e state t r a d i n g a n d d e v e l o p i n g c o u n t r i e s .
T h e c o m b i n e d share o f these t w o g r o u p s i n I r e l a n d ' s f o r e i g n t r a d e i n 1983 was
11 p e r cent i n t h e case o f e x p o r t s a n d 7 p e r c e n t i n t h e case o f i m p o r t s , b o t h v e r y
l o w by i n t e r n a t i o n a l standards.
T h e g e o g r a p h i c a l p a t t e r n o f f o r e i g n t r a d e is o f i n t e r e s t f o r v a r i o u s reasons. I t
w i l l , f o r example, help to d e t e r m i n e the extent t o w h i c h e c o n o m i c a n d o t h e r
"The author wishes to acknowledge the assistance o f D r . H e l e n O ' N e i l l , Department of Political E c o n o m y ,
University College D u b l i n , who supervised the doctoral research o n w h i c h this article is based. T h a n k s are
also due to D r . Bill O ' R i o r d a n a n d to Professor Paddy G e a r y who advised on aspects o f the research, to the
referees for very helpful comments, a n d to Irish S h i p p i n g L t d . a n d Celtic F o r w a r d i n g L t d . who provided
data.
developments
i n individual
overseas c o u n t r i e s
affect
the
Irish
economy.
S i m i l a r l y i t w i l l affect t h e i m p a c t o n t h e I r i s h e c o n o m y o f changes i n e x c h a n g e
rates, i n i n t e r n a t i o n a l t r a d e r e g u l a t i o n s , a n d i n i n t e r n a t i o n a l t r a n s p o r t costs.
H o w e v e r , t h e g e o g r a p h i c a l p a t t e r n o f I r e l a n d ' s f o r e i g n t r a d e has
received
r e l a t i v e l y l i t t l e a t t e n t i o n i n e c o n o m i c studies. S o m e a t t e n t i o n has b e e n p a i d t o
changes i n t h e g e o g r a p h i c a l p a t t e r n o f t h i s t r a d e , i n p a r t i c u l a r t o t h e d e c l i n e i n
t h e i m p o r t a n c e o f t h e U K as a d e s t i n a t i o n f o r I r i s h e x p o r t s a n d t o t h e r o l e o f
EEC
m e m b e r s h i p i n t h i s (see M a t t h e w s (1980), M c A l e e s e (1984)). H o w e v e r , n o
attempts have been m a d e to e x a m i n e the g e o g r a p h i c a l p a t t e r n o f I r e l a n d ' s
f o r e i g n t r a d e o n a c r o s s - s e c t i o n a l basis o r t o o f f e r a systematic e x p l a n a t i o n f o r
this p a t t e r n . T h i s s i t u a t i o n contrasts w i t h t h a t o f the p r o d u c t c o m p o s i t i o n o f
I r i s h m e r c h a n d i s e t r a d e . A n u m b e r o f studies h a v e tested t h e e x t e n t t o w h i c h
this p r o d u c t p a t t e r n complies w i t h the expectations derived f r o m i n t e r n a t i o n a l
t r a d e t h e o r y (see M c G i l v r a y a n d S i m p s o n (1973), F a r l e y (1972), F a r l e y (1973),
F a r l e y (1981), M c A l e e s e a n d C a r e y (1981)).
Table 1: Origin of Irish imports and destination of Irish exports, 1962, 1970,1977, and 1983 (as% current
value, rounded)
1962
Imports
1970
1977
1983
1962
Exports
1977
1970
1983
EEC
of which: UK
other E E C
66
50
16
69
52
17
68
48
20
67*
45
22
80
74
6
75
62
13
76
47
29
69*
37
32
Other developed countries
of which: EFTA
USA/Canada
Other
18
4
10
4
17
5
9
3
19
5
9
5
25
4
16
5
11
1
9
1
18
2
14
2
14
3
8
3
19
5
9
5
State trading countries
Less developed countries
Unclassified
2
11
3
2
9
3
2
8
' —
;
2
5
1
3
6
1
3
3
1
8
1
1
10
1
100
100
100
100
100
100
100
100
Total
Source: C S O , External Trade Statistics 1965-66, 1972, a n d Trade Statistics of Ireland, D e c e m b e r 1978, 1983.
• E E C (10), other years are E E C (9).
The purpose
o f the present
a r t i c l e is t o assess t h e e x t e n t t o w h i c h
one
e c o n o m i c t h e o r y o f the d i r e c t i o n o f t r a d e h e l p s t o e x p l a i n I r e l a n d ' s f o r e i g n
t r a d e p a t t e r n . T h e t h e o r y e x a m i n e d is t h e " g r a v i t y " m o d e l . T h i s is a p p l i e d t o
I r e l a n d ' s f o r e i g n t r a d e i n 1977. T h e a r t i c l e c o n c e n t r a t e s o n m e r c h a n d i s e t r a d e
o n l y a n d t r a d e i n services is n o t c o n s i d e r e d .
II GRAVITY TRADE
MODELS
G r a v i t y m o d e l s o f i n t e r n a t i o n a l t r a d e f l o w s , associated w i t h t h e w o r k o f
T i n b e r g e n (1962), L i n n e m a n n (1966), P o y h o n e n (1963) a n d P u l l i a i n e n (1963),
abstract f r o m the detailed p r o d u c t c o n t e n t o f f o r e i g n trade a n d e x a m i n e the
level
o f total
trade
between
countries
or
groups
o f countries.
Similar
a p p r o a c h e s a r e u s e d i n r e g i o n a l studies t o e x p l a i n f l o w s s u c h as m i g r a t i o n ,
c o m m u t i n g , t r a n s p o r t a n d t o u r i s m (see, f o r e x a m p l e , R i c h a r d s o n (1978, p p .
194-195)). G r a v i t y m o d e l s , i n g e n e r a l , o b t a i n t h e i r i n s p i r a t i o n f r o m p h y s i c s a n d
f r o m t h e i n t e r p l a y o f t h e forces o f a t t r a c t i o n , a n d resistence. I n t h e case o f
i n t e r n a t i o n a l t r a d e t h e m a j o r " t r a d e c r e a t i n g " f o r c e u s e d i n g r a v i t y m o d e l s is
e c o n o m i c size as m e a s u r e d
b y G N P , p o p u l a t i o n o r g e o g r a p h i c a l area. T h e
m a j o r " t r a d e p r e v e n t i n g " f o r c e is d i s t a n c e , r e p r e s e n t i n g b o t h t r a n s p o r t costs
a n d o t h e r m o r e p s y c h o l o g i c a l b a r r i e r s (see B e c k e r m a n (1956)). T h e effect o f
c o m m e r c i a l p o l i c y o n t r a d e f l o w s has a l s o b e e n tested w i t h i n t h e s e t t i n g o f
gravity
models
by
potentially trade
incorporating
preferential
trading
arrangements
c r e a t i n g v a r i a b l e s (see T i n b e r g e n (1962) a n d
(1966)).
'
as
Linnemann
•
W h i l e s o m e t i m e s p r e s e n t e d as a n a l t e r n a t i v e t o n e o - c l a s s i c a l t r a d e t h e o r y
(e.g., b y L i n n e m a n n (1966)), t h e g r a v i t y a p p r o a c h is c o n s i s t e n t w i t h f a c t o r
p r o p o r t i o n s trade
theory. G r a v i t y - t y p e influences facilitate o r prevent
the
r e a l i s a t i o n o f t r a d e f l o w s as d e t e r m i n e d b y c o m p a r a t i v e a d v a n t a g e . F o l l o w i n g
u p o n t h e e a r l y w o r k , m o r e r e c e n t studies h a v e c o n f i r m e d t h a t g r a v i t y m o d e l s
have considerable e x p l a n a t o r y p o w e r w i t h r e g a r d t o the g e o g r a p h i c a l p a t t e r n
o f i n t e r n a t i o n a l t r a d e (see A i t k i n (1973), H e w e t t (1976), G e r a c h i a n d
Prewo
(1977), Weiss a n d W o l t e r (1979), a n d S a p i r (1981)).
T h e g r a v i t y m o d e l a l s o p r o v i d e s a c o n v e n i e n t f r a m e w o r k w i t h i n w h i c h t o test
Linder's
"preference
s i m i l a r i t y " hypothesis
(Linder
1961). T h e
preference
s i m i l a r i t y a p p r o a c h was d e v e l o p e d i n a n a t t e m p t t o e x p l a i n t h e c o n c e n t r a t i o n
of
trade
i n manufactured
hypothesised
that
a
goods
majority
among
industrialised countries.
o f manufactured
goods
are
Linder
designed
and
p r o d u c e d i n i t i a l l y t o satisfy d o m e s t i c d e m a n d , a n d a r e e x p o r t e d o n l y w h e n
f i r m l y established o n the h o m e m a r k e t . T h e y are, therefore, m o s t likely t o be
s o l d t o o t h e r d e v e l o p e d c o u n t r i e s h a v i n g s i m i l a r i n c o m e a n d tastes. L i n d e r
o b t a i n e d e m p i r i c a l l y i n c o n c l u s i v e results, b u t a n u m b e r o f m o r e r e c e n t s t u d i e s
f o u n d e v i d e n c e t o s u p p o r t h i s h y p o t h e s i s . T h i s s u p p o r t consists o f a n e g a t i v e
r e l a t i o n s h i p b e t w e e n t h e l e v e l o f t r a d e i n m a n u f a c t u r e d g o o d s a n d t h e size o f
t h e per capita i n c o m e d i f f e r e n t i a l b e t w e e n t r a d i n g p a r t n e r s (see F o r t u n e (1971),
H i r s c h a n d L e v (1973), S a i l o r s et al (1973)). I n a g r a v i t y m o d e l , per capita i n c o m e
d i f f e r e n c e c a n b e i n c o r p o r a t e d as a n a d d i t i o n a l t r a d e - p r e v e n t i n g e x p l a n a t o r y
variable.
I l l TEST O F A GRAVITY M O D E L FOR IRISH
TRADE
T h e g r a v i t y m o d e l u s e d h e r e is d e r i v e d f r o m T i n b e r g e n (1962) s t u d y . T h e
o v e r a l l h y p o t h e s i s is t h a t t h e l e v e l o f t r a d e b e t w e e n a p a i r o f t r a d i n g p a r t n e r s is
a positive f u n c t i o n o f the G N P o f the t r a d i n g countries a n d a negative f u n c t i o n
o f t h e d i s t a n c e b e t w e e n t h e m . T h e m o d e l tested i s :
M , X = f ( Y , D , K)
(1)
where M , X = the m o n e t a r y value o f I r i s h merchandise i m p o r t s o r exports,
Y
=
G N P o f the t r a d i n g partner,
D
= distance t o / f r o m the t r a d i n g partner,
K
= various d u m m y variables.
T h i s m o d e l is tested u s i n g c r o s s - s e c t i o n d a t a o n I r e l a n d ' s f o r e i g n t r a d e w i t h
seventy c o u n t r i e s i n 1977.
T h e i m p o r t a n d e x p o r t statistics u s e d are d a t a o n t h e c u r r e n t v a l u e o f I r i s h
merchandise trade published by Eurostat.
1
T h e seventy c o u n t r i e s i n c l u d e d are
t h o s e w i t h w h i c h I r e l a n d h a d r e c o r d e d i m p o r t s a n d e x p o r t s i n 1977. T h e y
i n c l u d e 22 d e v e l o p e d c o u n t r i e s , 41 less d e v e l o p e d c o u n t r i e s a n d seven state
t r a d i n g c o u n t r i e s . R e g a r d i n g the i n d e p e n d e n t v a r i a b l e s , t h e G N P d a t a u s e d a r e
2
W o r l d B a n k statistics r e l a t i n g t o 1977. D a t a o n distances are s h i p p i n g distances
f r o m D u b l i n t o t h e m a j o r p o r t o f t h e t r a d i n g p a r t n e r . T h e m a i n s o u r c e o f these
data
are
estimates.
published
marine
distance
tables
augmented
i n s o m e cases b y
3
Five d u m m y v a r i a b l e s are i n c o r p o r a t e d i n t h e m o d e l . T h e s e a r e i n t e n d e d t o
c a p t u r e a n y q u a l i t a t i v e differences i n t h e o p e r a t i o n o f t h e g r a v i t y m o d e l w i t h
d i f f e r e n t c o u n t r y g r o u p s . I n each case a v a l u e o f 1 is a t t a c h e d t o c o u n t r i e s t h a t
are m e m b e r s o f the d e s i g n a t e d g r o u p s a n d a v a l u e o f zero is a t t a c h e d t o n o n members.
The
five
dummy
variables
represent
membership
or
non-
m e m b e r s h i p o f the f o l l o w i n g g r o u p s o f countries:
K , = E E C c o u n t r i e s , K = A C P c o u n t r i e s (less d e v e l o p e d c o u n t r i e s t h a t are
2
s i g n a t o r i e s o f the L o m e C o n v e n t i o n ) , K = a l l d e v e l o p e d c o u n t r i e s , K = state
3
4
t r a d i n g countries, K . = M i d d l e Eastern o i l producers.
5
1. Data I r o m Eurostat, EEC Trade by Commodity Classes and Main Countries: January to December 1977, 5-1978
(Supplement to the Monthly External T r a d e Bulletin). T h i s source was chosen because the classification
methods used tacilitated the analysis. T h e choice of year was dictated by Eurostat data availability at the time
when the research was undertaken. T h e r e is no reason to suppose that the particular choice of year raises any
difficulties of generalisation.
2. W o r l d Bank, World Development Report 1979, W a s h i n g t o n : W o r l d Bank, A n n e x . T h i s gives G N P data in U S
dollars c o n v e n e d at official exchange rates. A n u m b e r o f studies have experimented with G N P converted at
purchasing power parity exchange rates but did not obtain superior results, see T i n b e r g e n (1962) T a b l e V I - 4 ,
L i n n e m a n n (1966) T a b l e 5.3 a n d G e r a c h i a n d Prewo (1977), A n n e x T a b l e 1. T h i s may be because n o m i n a l
G N P measures p u r c h a s i n g power in international markets.
3. T h e distance tables used are Reed's Marine Distance Tables, L o n d o n : T h o m a s Reed, 1976, a n d Marine Distance
and Speed Tables, Mobile, A l a . : W a t e r m a n Steamship C o m p a n y (no date). T h e additional estimates were
provided by Irish S h i p p i n g L t d . I n certain instances the choice o f m a j o r port is somewhat arbitrary. However,
it is not a frequent p r o b l e m . I n the case of land-locked countries the estimated distance from the nearest port
to the l a n d - b o r d e r is added to the shipping distance. O n l y three such countries (Switzerland, Austria a n d
Zaire) are included in the regression. I n some cases the choice of sea route has a large effect o n shipping
distance. T h i s is particularly true o f the choice between the P a n a m a a n d Suez C a n a l routes to the F a r East a n d
O c e a n i a . W h e r e such alternatives exist the shortest route is chosen.
No
a priori
mathematical formulation
o f the
relationship between
v a r i a b l e s exists. H o w e v e r , p r e v i o u s g r a v i t y studies u s i n g r e g r e s s i o n
the
analysis
h a v e f o u n d t h e best results w i t h a l o g - l i n e a r e q u a t i o n . T h i s f o r m is also used
h e r e a n d the m o d e l is tested u s i n g O L S r e g r e s s i o n . T h e e x p e c t e d s i g n o n t h e
GNP
v a r i a b l e (Y) is p o s i t i v e a n d t h a t o n d i s t a n c e ( D ) n e g a t i v e . T h e e x p e c t e d
signs o n the p r e f e r e n t i a l t r a d e a r r a n g e m e n t
d u m m i e s ( K , a n d K ) are
2
also
p o s i t i v e . E x p e c t a t i o n s r e g a r d i n g t h e o t h e r d u m m y v a r i a b l e s are i n d e t e r m i n a t e
o n a priori
grounds.
T h e m o d e l is tested f o r six d e p e n d e n t v a r i a b l e s . T h e s e are t o t a l m e r c h a n d i s e
i m p o r t s ( M , ) , i m p o r t s o f raw materials a n d foodstuffs ( M ) , i m p o r t s o f other
2
manufactured
goods
( M ) , total merchandise
3
exports ( X , ) , exports o f raw
materials a n d foodstuffs (X ) a n d exports o f other manufactures ( X ) .
2
4
3
IV RESULTS
T h e results are p r e s e n t e d i n T a b l e 2. F o r a l l six e q u a t i o n s t h e F-statistics a r e
significant at the 1 per cent level. R
2
r a n g e f r o m .39 t o .82 a n d t h e t w o m a i n
e x p l a n a t o r y v a r i a b l e s , G N P (Y) a n d d i s t a n c e ( D ) , have the e x p e c t e d signs. T h e
m o d e l p e r f o r m s consistently better f o r exports t h a n f o r i m p o r t s . O n e possible
e x p l a n a t i o n f o r t h i s is t h a t e x p o r t s are v a l u e d f . o . b . , t h a t is free o f i n s u r a n c e
a n d f r e i g h t , w h e r e a s i m p o r t s are v a l u e d at c.i.f. p r i c e s w h i c h i n c l u d e these
e l e m e n t s . T h u s e x p o r t p r i c e s m a y b e a m o r e precise m e a s u r e o f t r a d e levels.
T h e r e m a y also b e a g r e a t e r t e n d e n c y f o r i m p o r t s o r i g i n a t i n g i n d e v e l o p i n g
Table 2: Results of regression analysis of a gravity model of Irish trade flows, 1977
Dependent
Variable
2
3
K,
+0.5*" -0.3
+0.7** -0.2
+0.5" -0.2*
*1
x
D
-0.2
+0.5
+ 1.5*
+0.4* -0.1
+ 1.1
+0.5" - 0 . 4 " + 1.7"
M,
M
M
Y
3
K
K
2
+0.7
+0.9
-0.6
3
K
4
5
R
2
F
No. Obser­
vations
—1.4* * + 1.6**
-1.1
+2.2**
-1.4* - 2 . 1 "
.60
.39
.73
15.5*"
6.0**
22.4**
70
56
65
+ 1.1* -2.3** +0.8
-2.3"
-0.3
-0.2
+ 1.4** _ 1 9 * * + 1.2**
.77
.66
.82
28.8"
14.4"
36.5**
69
59
62
+ 1.1*
+ 1.1
+ 1.1*
+ 1.6** -0.4
+2.5"" +0.3
+ 1.3** +0.7
K
* = significant at 95% confidence interval. ** = significant at 99% confidence interval.
Dependent V a r i a b l e s : M j = total imports, M
2
= raw material a n d food imports, M
imports, X = total exports, X = raw material a n d food exports, X
t
2
3
3
= manufactured
= manufactured exports.
Independent Variables: Y = G N P o f trading partner, D = shipping distance to trading partner, K j to K j =
d u m m y variables representing E E C , A C P , n o n - L D C , state trading a n d M i d d l e East oil p r o d u c e r country
groups, respectively.
4.
R a w materials/foodstuffs a n d manufactures (excluding food) are defined as products in S I T C Classes 0-4
and 5-8, respectively. I n some instances the absence of recorded trade in a particular category reduced the
n u m b e r of observations.
c o u n t r i e s t o b e i m p o r t e d i n p r o c e s s e d f o r m f r o m t h i r d c o u n t r i e s , i n w h i c h case
t h e g r a v i t y m o d e l w o u l d lose s o m e o f its e x p l a n a t o r y p o w e r . T h e f a c t t h a t t h e
model
explains manufactured
i m p o r t s ( M ) m u c h better
than it explains
3
i m p o r t s o f r a w m a t e r i a l s a n d f o o d s t u f f s ( M ) is c o n s i s t e n t w i t h t h i s c o n c l u s i o n .
2
O f t h e i n d e p e n d e n t v a r i a b l e s , G N P o f t h e t r a d i n g p a r t n e r (Y) p e r f o r m s
c o n s i s t e n t l y best. Since a l o g - l i n e a r f u n c t i o n is u s e d , t h e e s t i m a t e d c o e f f i c i e n t
c a n b e i n t e r p r e t e d as a n e l a s t i c i t y . A c r o s s t h e c o u n t r i e s w i t h w h i c h I r e l a n d h a d
r e c o r d e d t r a d e i n 1977, a d o u b l i n g o f G N P size is associated w i t h a n increase o f
j u s t o v e r h a l f i n t h e level o f m e r c h a n d i s e t r a d e . H o w e v e r , elasticities f o r a crosss e c t i o n m o d e l m u s t b e t r e a t e d c a u t i o u s l y . T h e y are c l e a r l y n o t a u t o m a t i c a l l y
a p p l i c a b l e t o t i m e - s e r i e s o b s e r v a t i o n s , i . e . , t h e m o d e l does n o t i m p l y t h a t a
d o u b l i n g o f a n y t r a d e p a r t n e r ' s G N P w o u l d r e s u l t i n a 50 p e r c e n t increase i n
I r e l a n d ' s level o f t r a d e w i t h t h a t c o u n t r y . I n d e e d , casual o b s e r v a t i o n shows t h a t
i n m a n y cases I r e l a n d ' s t r a d e levels have b e e n r i s i n g r a p i d l y r e l a t i v e t o increases
i n its t r a d i n g p a r t n e r s ' G N P .
T h e d i s t a n c e v a r i a b l e ( D ) , w h i l e h a v i n g t h e e x p e c t e d s i g n t h r o u g h o u t , is
statistically significant f o r trade i n m a n u f a c t u r e s o n l y . T h e d u m m y variables
give m i x e d r e s u l t s . T h e E E C d u m m y ( K , ) is s t a t i s t i c a l l y s i g n i f i c a n t f o r t o t a l
i m p o r t s , f o r m a n u f a c t u r e d i m p o r t s , a n d f o r all o f exports, w i t h the expected
p o s i t i v e s i g n i n each case. T h i s i n d i c a t e s t h a t , w i t h t h e e x c e p t i o n o f r a w m a t e r i a l
i m p o r t s , I r e l a n d s t r a d e w i t h its E E C p a r t n e r s is h i g h e r t h a n t r a d e w i t h n o n E E C c o u n t r i e s h a v i n g o t h e r w i s e s i m i l a r features. T h e existence o f p r e f e r e n t i a l
t r a d e a r r a n g e m e n t s c a n b e e x p e c t e d t o e x p l a i n t h i s r e s u l t , as w o u l d t r a d i t i o n a l
business ties a n d s i m i l a r i n f l u e n c e s .
A n i m p o r t a n t q u e s t i o n a r i s i n g h e r e is w h e t h e r t r a d e w i t h the U K , w h i c h
c o n s t i t u t e s such a l a r g e p r o p o r t i o n o f a l l I r i s h t r a d e , is l a r g e l y r e s p o n s i b l e f o r
the significance o f the E E C d u m m y variable. A repeat o f the regression w i t h o u t
t h e U K d i d n o t s u p p o r t t h i s a n d t h e l e v e l o f s i g n i f i c a n c e o f the E E C d u m m y
v a r i a b l e was m a i n t a i n e d .
T h e o t h e r t r a d e p r e f e r e n c e d u m m y , r e p r e s e n t i n g t h e A C P c o u n t r i e s , is n o t
s i g n i f i c a n t . T h e d u m m y r e p r e s e n t i n g a l l d e v e l o p e d c o u n t r i e s is s t a t i s t i c a l l y
significant for total trade a n d for trade i n m a n u f a c t u r e d goods w i t h a positive
s i g n t h r o u g h o u t . T h i s suggests t h a t i n these cases, ( b u t n o t f o r t r a d e i n p r i m a r y
p r o d u c t s a n d foodstuffs) I r e l a n d tends to trade m o r e w i t h developed c o u n t r i e s
t h a n w i t h d e v e l o p i n g c o u n t r i e s w i t h o t h e r w i s e s i m i l a r c h a r a c t e r i s t i c s . I t also
suggests t h a t t h e r e are i n f l u e n c e s at w o r k , i n a d d i t i o n t o t h o s e i n c o r p o r a t e d i n
the
model,
hindering
Irish
trade
with
developing countries.
A
similar
c o n c l u s i o n e m e r g e s r e g a r d i n g state t r a d i n g c o u n t r i e s . T h e d u m m y v a r i a b l e
r e p r e s e n t i n g M i d d l e E a s t e r n o i l p r o d u c e r s is h i g h l y s i g n i f i c a n t f o r i m p o r t s .
T h i s shows a t e n d e n c y t o i m p o r t m o r e f r o m these c o u n t r i e s t h a n f r o m o t h e r
s i m i l a r c o u n t r i e s elsewhere. H o w e v e r , t h e c o n t r a s t i n g signs i n t h e r a w m a t e r i a l
a n d f o o d s t u f f case ( M ) a n d t h e m a n u f a c t u r e d g o o d s case ( M ) shows t h a t t h i s is
2
3
d u e t o t r a d e i n t h e f o r m e r p r o d u c t s o n l y . T h e e x p l a n a t i o n t h u s lies i n o i l
imports from
these c o u n t r i e s . O n
t h e e x p o r t side, t h e results p o i n t t o a
t e n d e n c y t o e x p o r t m o r e m a n u f a c t u r e d g o o d s t o these c o u n t r i e s t h a n t o o t h e r s ,
ceteris paribus.
Table 3: Results ofgravity model of Irish trade with developed countries (DC) and with less developed coun­
tries (LDC) 1977
Dependent
Variable
Y
D
LDC
DC
+0.7'*
+i.O"
-0.1
-0.6**
.13
.71
2.96*
18.78**
41
22
LDC
DC
+0.7'
+0.5
-0.2
-0.7**
.08
.50
1.96
1.82
33
20
LDC
DC
+0:5
+ 1.5"
+0.3
-0.7"
.07
.74
1.87
20.84"
36
22
LDC
DC
+0.7"
+ 1.2**
-0.1
-0.5**
.19
.74
4.08*
21.02"
40
22
2
LDC
DC
+0.4
+ 1.3"
-0.2
-0.7**
.11
.59
2.35
11.08"
33
22
*3
LDC
DC
+0.7**
+ 1.1**
-0.1
-0.5"
.21
.80
3.98
29.12**
34
22 •
M
2
M
3
x.
X
R
2
p
Grou
F
No. Observations
* = significant at 95% confidence interval, ** = significant at 99% confidence interval
Dependent a n d Independent variables as in T a b l e 2.
T h e g r a v i t y m o d e l c a n also b e u s e d t o analyse I r i s h t r a d e p a t t e r n s
within
g r o u p s o f c o u n t r i e s . F o r t h i s p u r p o s e t h e m o d e l is r e - e s t i m a t e d f o r t r a d e w i t h
developed
and
developing countries
separately.
I n t h i s case t h e
dummy
v a r i a b l e s are o m i t t e d l e a v i n g t h e t w o i n d e p e n d e n t v a r i a b l e s , Y a n d D , a n d t h e
same six d e p e n d e n t v a r i a b l e s as i n T a b l e 2. T h e results a r e s h o w n i n T a b l e 3. I t
is e v i d e n t t h a t t h e m o d e l is c o n s i d e r a b l y m o r e successful i n e x p l a i n i n g t h e
geographical pattern o f I r i s h trade w i t h i n the developed c o u n t r y g r o u p t h a n
w i t h i n t h e less d e v e l o p e d c o u n t r y g r o u p . I t is also clear t h a t t h i s is d u e m a i n l y t o
the f a i l u r e o f t h e d i s t a n c e v a r i a b l e t o h a v e a n y s i g n i f i c a n t e x p l a n a t o r y p o w e r i n
t r a d e w i t h d e v e l o p i n g c o u n t r i e s . T h e d i s t a n c e v a r i a b l e i n g r a v i t y t r a d e m o d e l s is
g e n e r a l l y r e g a r d e d as c a p t u r i n g b o t h t r a n s p o r t costs a n d o t h e r c u l t u r a l o r
p s y c h o l o g i c a l f a c t o r s w h i c h w o u l d m i l i t a t e a g a i n s t t r a d e . I t is l i k e l y t h a t i t d o e s
so less successfully i n a s a m p l e c o n t a i n i n g d e v e l o p i n g c o u n t r i e s o n l y
than
across a w i d e r r a n g e o f c o u n t r i e s . T h e r e a r e a n u m b e r o f p o s s i b l e r e a s o n s f o r
t h i s . F i r s t , o c e a n f r e i g h t rates are less r e l a t e d t o s h i p p i n g d i s t a n c e i n t h e case o f
t r a d e w i t h d e v e l o p i n g c o u n t r i e s t h a n w i t h o t h e r c o u n t r i e s (see Yeats (1979)).
S e c o n d , social a n d c u l t u r a l i n f l u e n c e s o n t r a d e m a y n o t b e v e r y c l o s e l y r e l a t e d
t o d i s t a n c e i n t h e case o f d e v e l o p i n g c o u n t r i e s . F o r e x a m p l e , I r e l a n d c o u l d b e
e x p e c t e d t o h a v e m o r e business ties w i t h f o r m e r B r i t i s h c o l o n i e s t h a n w i t h
Francophone countries.
V DISCUSSION
T h i s s e c t i o n discusses the r e l e v a n c e o f t h e g r a v i t y m o d e l t o I r i s h t r a d e f l o w s
w i t h reference t o s o m e v a r i a t i o n s o n t h e basis m o d e l . T h e s e v a r i a t i o n s i n v o l v e
two
changes i n the m o d e l as s p e c i f i e d i n E q u a t i o n (1) a b o v e . F i r s t , t r a n s p o r t
costs (T) are s u b s t i t u t e d f o r d i s t a n c e ( D ) . S e c o n d , t w o a d d i t i o n a l i n d e p e n d a n t
v a r i a b l e s are a d d e d t o t h e m o d e l . T h e s e a r e " p r e f e r a n c e s i m i l a r i t y " (S) a n d
p o p u l a t i o n o f t h e t r a d i n g p a r t n e r (P).
T h e d i s t a n c e v a r i a b l e i n g r a v i t y m o d e l s is d e s i g n e d t o c a p t u r e b o t h t r a n s p o r t
costs a n d o t h e r aspects o f " p s y c h i c d i s t a n c e " b e t w e e n c o u n t r i e s . H o w e v e r ,
since the r e l a t i v e i m p o r t a n c e o f these t w o e l e m e n t s
is u n c l e a r , a n d
since
t r a n s p o r t costs a n d s h i p p i n g distances m a y n o t b e always closely r e l a t e d , i t is
w o r t h w h i l e t o test a d i r e c t m e a s u r e o f t r a n s p o r t costs as a s u b s t i t u t e
distance.
As w i t h
distance,
the e x p e c t a t i o n is t h a t t h i s w i l l b e
for
negatively
associated w i t h t r a d e levels. P r e f e r e n c e s i m i l a r i t y is i n c o r p o r a t e d i n o r d e r t o
(est
the extent
to w h i c h
Linder's hypothesis
provides an
explanation o f
I r e l a n d ' s g e o g r a p h i c a l t r a d e p a t t e r n . I t is tested b y a d d i n g as a n i n d e p e n d a n t
v a r i a b l e t h e d i f f e r e n c e b e t w e e n t h e per capita i n c o m e o f I r e l a n d a n d t h a t o f its
t r a d i n g p a r t n e r s . I t s h o u l d b e n o t e d t h a t i t is t h e a b s o l u t e size o f t h i s d i f f e r e n c e
w h i c h is i m p o r t a n t a n d n o t its s i g n . T h e v a r i a b l e i n c o r p o r a t e d i n t h e m o d e l i s :
where S = preference similarity, Y = G N P , P = p o p u l a t i o n a n d the subscripts i
a n d j refer to I r e l a n d a n d t h e t r a d i n g p a r t n e r , r e s p e c t i v e l y . T h u s s p e c i f i e d , t h e
hypothesis
is t h a t S w i l l b e
negatively correlated w i t h
the level o f trade.
R e g a r d i n g p o p u l a t i o n , a n u m b e r o f studies h a v e a d d e d t h i s t o T i n b e r g e n ' s
t r a d e m o d e l as a n e x p l a n a t o r y v a r i a b l e . T h e s e h a v e h y p o t h e s i s e d a n e g a t i v e
r e l a t i o n s h i p b e t w e e n p o p u l a t i o n levels a n d t r a d e f l o w s . Results h a v e
been
m i x e d (see L i n n e m a n n (1966) a n d S a p i r (1981)). T h e r e are t w o p o s s i b l e reasons
for
t h i s . F i r s t , t h e u n d e r l y i n g r a t i o n a l e is a m b i g u o u s a n d has v a r i e d
from
a u t h o r t o a u t h o r ( o n t h i s see L e a r n e r a n d S t e r n (1970, p p . 152-153)). S e c o n d , i n
a c r o s s - s a m p l e o f c o u n t r i e s , p o p u l a t i o n a n d G N P are p o s i t i v e l y c o r r e l a t e d so
that regression equations i n c o r p o r a t i n g b o t h have a m u l t i c o l l i n e a r i t y p r o b l e m .
P o p u l a t i o n is t h e r e f o r e i n c o r p o r a t e d i n t h e m o d e l h e r e o n a n e x p e r i m e n t a l
basis.
s
T h e G N P per capita a n d t h e p o p u l a t i o n d a t a are W o r l d B a n k d a t a f o r 1 9 7 7 .
D a t a o n t r a n s p o r t costs p r e s e n t g r e a t e r d i f f i c u l t y . T h e m e a s u r e used is t h e
average q u o t e d m i d - 1 9 8 0 o u t w a r d f r e i g h t r a t e f r o m D u b l i n t o t h e m a j o r p o r t
6
o f the t r a d i n g p a r t n e r f o r a s t a n d a r d (20 c u b i c feet) s h i p p i n g c o n t a i n e r . T h i s is
5. T h e source is as in footnote N o . 2.
6. Quotations were provided by Celtic F o r w a r d i n g L t d . , D u b l i n . I n theory, the difference between f.o.b. and
c.i.l. prices for particular commodities c o u l d be used. However, i n practice these have been found to be
unreliable (sec Yeats (1979) C h a p t e r 7). T h e present analysis also requires a n "average" rate representative o f
trade in different products.
T
a r a t h e r c r u d e m e a s u r e a n d is n o t r e p r e s e n t a t i v e o f b u l k c a r g o rates. H o w e v e r ,
i t a p p e a r s t o b e t h e m o s t a p p r o p r i a t e o n e t h a t c a n b e o b t a i n e d . Since o u t w a r d
s h i p p i n g rates are used, t h e m o d e l is tested f o r e x p o r t s o n l y . T h e m o d e l is
t h e r e f o r e as f o l l o w s :
X = f (Y, S, T , P, K )
(2)
w h e r e X = t h e v a l u e o f I r i s h m e r c h a n d i s e e x p o r t s i n 1977,
Y = G N P o f the t r a d i n g p a r t n e r ,
S = " p r e f e r e n c e s i m i l a r i t y " as d e f i n e d a b o v e ,
T = t r a n s p o r t costs,
P = p o p u l a t i o n o f the t r a d i n g partner,
K = d u m m y v a r i a b l e s as i n E q u a t i o n (1).
T h e s a m p l e used
presented
is t h e same as t h a t f o r E q u a t i o n (1) a n d t h e r e s u l t s
are
i n T a b l e 4. C o m p a r i s o n w i t h T a b l e 2 shows t h a t t h i s e q u a t i o n
p e r f o r m s s i m i l a r l y t o the basic g r a v i t y m o d e l .
Table 4: Results of gravity model of Irish trade with preference similarity, transport cost and population
variables, 1977
Dependent
Variable
Y
S
P
T
K,
K
2
K
3
K
K
4
5
+0.8" -0.1 -1.5 -0.2
+0.4 +0.8 +0.2 -1.4* +0.6
+0.6
-0.1 -1.3 +0.1 + 1.8 +0.3 -0.8 -1.3 -0.2
+0.9*" +0.1 -0.9* -0.3* +0.5 + 1.0* +0.7 -1.2* +0.7
s
x
2
*3
* = significant at 9596 confidence interval, "
R
2
F
.79 21.1**
.62 8.9**
.84 26.4**
No. obser­
vations
50
44
44
= significant at 9996 confidence interval.
Variables as in T a b l e 2 except S = preference similarity, T = transport costs.
T h e t r a n s p o r t v a r i a b l e has t h e c o r r e c t s i g n a n d is s i g n i f i c a n t at t h e 5 p e r cent
level f o r t o t a l a n d f o r m a n u f a c t u r e d e x p o r t s . T h i s i n d i c a t e s a s o m e w h a t b e t t e r
p e r f o r m a n c e t h a n t h e d i s t a n c e v a r i a b l e . T h e p o p u l a t i o n v a r i a b l e is s i g n i f i c a n t ,
w i t h a n e g a t i v e s i g n , i n t h e case o f m a n u f a c t u r e d
consistent
with
other
findings but
the
e x p o r t s . T h i s r e s u l t is
interpretation problems
remain.
R e g a r d i n g p r e f e r e n c e s i m i l a r i t y (S), t h i s has t h e e x p e c t e d n e g a t i v e s i g n f o r t o t a l
e x p o r t s a n d f o r e x p o r t s o f r a w m a t e r i a l a n d f o o d . I n t h e case o f m a n u f a c t u r e d
g o o d s t o w h i c h the t h e o r y is m o r e c o r r e c t l y a p p l i c a b l e , i t has a p o s i t i v e s i g n . I n
no
case
is
i t s t a t i s t i c a l l y s i g n i f i c a n t so
that
as
an
explanation
for
the
g e o g r a p h i c a l p a t t e r n o f I r i s h t r a d e t h e p r e f e r e n c e s i m i l a r i t y h y p o t h e s i s is n o t
s u p p o r t e d b y t h e e v i d e n c e . T h e m o s t l i k e l y e x p l a n a t i o n f o r t h i s lies i n the
predominance
of
foreign-owned
subsidiary
companies
in
Ireland's
m a n u f a c t u r e d exports. As a result o f this, o n l y a relatively small p r o p o r t i o n o f
these e x p o r t s has g r o w n t h r o u g h a L i n d e r process o f s a t i s f y i n g h o m e d e m a n d
first a n d t h e n p r o g r e s s i n g o n t o e x p o r t m a r k e t s . T h e r e l a t i v e l y s m a l l size o f the
d o m e s t i c I r i s h m a r k e t also l i m i t s t h e r e l e v a n c e o f L i n d e r s ' s a p p r o a c h i n t h e case
o f m a n u f a c t u r e d exports b y i n d i g e n o u s I r i s h f i r m s . M i n i m u m efficient p l a n t
size i n m a n y m o d e r n i n d u s t r i e s necessitates i m m e d i a t e p r o d u c t l a u n c h o n t o
export
markets.
The
relevance
of
preference
sirriilarity
to
Ireland's
m a n u f a c t u r e d i m p o r t s is n o t e x a m i n e d h e r e . I t w o u l d a p p e a r , a priori, t o h a v e
a p p l i c a t i o n t o i m p o r t s o f m a n u f a c t u r e d c o n s u m e r g o o d s b u t n o t neccessarily
so t o c a p i t a l e q u i p m e n t i m p o r t s o r t o m a n u f a c t u r e d c o m p o n e n t s . A n o t h e r
factor
that may l o w e r the e x p l a n a t o r y p o w e r o f the preference
similarity
h y p o t h e s i s i n t h e I r i s h c o n t e x t is I r e l a n d ' s m i d - p o s i t i o n o n t h e i n t e r n a t i o n a l
i n c o m e per capita scale (see F i t z p a t r i c k (1983)). T h e m a j o r d e v e l o p e d c o u n t r i e s
w i t h w h o m t h e s t r o n g e s t g r a v i t y - t y p e t r a d e c r e a t i n g forces are a t p l a y have per
capita i n c o m e s c o n s i d e r a b l y g r e a t e r t h a n I r e l a n d . T r a d e w i t h o t h e r m i d d l e
income
c o u n t r i e s faces t r a d e
language
and
other
p r e v e n t i n g factors
barriers,
and
an
i n the f o r m
absence
of
of
distance,
preferential
trade
arrangements.
VI CONCLUSIONS
As
described
in
the
introduction,
Ireland's
foreign
trade
is
heavily
c o n c e n t r a t e d o n a s m a l l n u m b e r o f i n d u s t r i a l i s e d c o u n t r i e s . T h i s a r t i c l e has
e x a m i n e d the extent to w h i c h a gravity m o d e l o f i n t e r n a t i o n a l trade flows can
e x p l a i n t h i s . T h e analysis suggests t h r e e m a i n c o n c l u s i o n s :
(i) T h e t h r e e m a i n e x p l a n a t o r y v a r i a b l e s u s e d i n g r a v i t y m o d e l s , n a m e l y the
G N P o f t r a d i n g p a r t n e r s , t h e i r d i s t a n c e a p a r t o r t r a n s p o r t costs, a n d the
p r e s e n c e o r absence o f p r e f e r e n t i a l t r a d e a r r a n g e m e n t s , h a v e c o n s i d e r a b l e
e x p l a n a t o r y p o w e r r e g a r d i n g the large share o f a relatively s m a l l n u m b e r
o f c o u n t r i e s i n I r e l a n d ' s overseas t r a d e . T h e d o m i n a n c e o f t h e U K a n d
o t h e r E E C countries i n I r i s h merchandise i m p o r t s a n d exports can, to a
l a r g e e x t e n t , b e e x p l a i n e d i n t h i s w a y . So t o o c a n t h e c o n v e r s e o f these
c o u n t r i e s ' d o m i n a n c e o f I r i s h t r a d e , t h a t is t h e r e l a t i v e l y s m a l l share o f the
m a j o r i t y o f the c o u n t r i e s o f the w o r l d i n I r i s h trade. T h e l o w level o f G N P
o f m a n y o f these c o u n t r i e s , n o t a b l y less d e v e l o p e d c o u n t r i e s , a n d t h e i r
d i s t a n c e f r o m I r e l a n d p r o v i d e a systematic e x p l a n a t i o n o f m u c h o f t h e i r
l o w share i n I r i s h f o r e i g n trade. W i t h r e g a r d t o this latter p o i n t , however,
a n i m p o r t a n t aspect o f t h e m e t h o d u s e d i n t h e a r t i c l e s h o u l d b e n o t e d . As
d e s c r i b e d e a r l i e r , t h e m o d e l was tested f o r t h o s e c o u n t r i e s w i t h w h i c h
I r e l a n d h a d r e c o r d e d i m p o r t s a n d e x p o r t s i n 1977. T h e s a m p l e d i d n o t
i n c l u d e c o u n t r i e s w i t h w h o m I r e l a n d h a d e i t h e r n o t r a d e , o r t r a d e so s m a l l
as t o b e u n r e c o r d e d .
7
O u t o f a t o t a l o f s o m e 150 less d e v e l o p e d c o u n t r i e s ,
I r e l a n d h a d r e c o r d e d t r a d e i n b o t h d i r e c t i o n s w i t h o n l y 41 s u c h countries;
7. T h e Eurostat trade data used are in millions of E u r o p e a n Units of A c c o u n t ( E U A ) r o u n d e d to the first
decimal place. T h i s means that only trade valued at 50,000 E U A a n d above in 1977 was recorded. T r a d e below
this level was recorded as zero.
i n 1977. C o n s e q u e n t l y , t h e l a r g e n u m b e r o f s u c h c o u n t r i e s w i t h w h o m
I r e l a n d has n o t r a d e a t a l l is a n o t h e r r e a s o n f o r t h e l o w s h a r e o f less
d e v e l o p e d c o u n t r i e s i n I r i s h trade. T h e s i t u a t i o n c o u l d be t h o u g h t o f i n
t e r m s o f a t r a d e t h r e s h o l d . A s a p p l i e d h e r e , t h e g r a v i t y m o d e l is u s e d t o
e x p l a i n t r a d e levels after t h e i n i t i a l t h r e s h o l d is c r o s s e d . A n o t h e r q u e s t i o n ,
n o t a n a l y s e d h e r e , is w h y t h e t h r e s h o l d is c r o s s e d i n s o m e cases a n d n o t i n
others.
(ii) U n l i k e
the
conventional
gravity
approach,
the
preference
similarity
h y p o t h e s i s does n o t a p p e a r t o c o n t r i b u t e t o e x p l a i n i n g t h e g e o g r a p h i c a l
pattern o f Ireland's merchandise exports. Irish manufactured exports do
n o t a p p e a r t o have d e v e l o p e d t h r o u g h a L i n d e r - t y p e process o f s p i l l o v e r
o n t o overseas m a r k e t s f r o m t h e h o m e m a r k e t . T h e r o l e o f f o r e i g n - o w n e d
subsidiary
firms
i n these e x p o r t s is t h e m o s t l i k e l y e x p l a n a t i o n f o r t h i s .
(iii) A n i m p o r t a n t aspect o f t h e g e o g r a p h i c a l p a t t e r n o f f o r e i g n t r a d e is c h a n g e
i n t h i s p a t t e r n o v e r t i m e . I n I r e l a n d ' s case t h e m a i n e x a m p l e o f t h i s , as
s h o w n i n T a b l e 1, has b e e n t h e d e c l i n i n g i m p o r t a n c e o f t h e U K as a t r a d i n g
p a r t n e r a n d a c o r r e s p o n d i n g increase i n t h e i m p o r t a n c e o f o t h e r E E C
c o u n t r i e s . T h i s is g e n e r a l l y seen as r e s u l t i n g f r o m E E C e n t r y i n 1973. T h e
p r e s e n t a r t i c l e has c o n c e n t r a t e d o n t h e g e o g r a p h i c a l p a t t e r n o f I r e l a n d ' s
t r a d e i n a s i n g l e year, 1977. I t has n o t e x a m i n e d t h e r e l e v a n c e o f t h e g r a v i t y
m o d e l t o c h a n g e s i n t h e g e o g r a p h i c a l p a t t e r n o f t r a d e n o r has i t tested t h e
extent to w h i c h the model's explanatory p o w e r m i g h t alter f r o m
period
to another.
arrangements,
Nevertheless,
i t does suggest t h a t a l o n g s i d e
one
trade
e c o n o m i c size o f t h e t r a d i n g p a r t n e r m a y h e l p e x p l a i n
c h a n g i n g geographical trade patterns. T h e relative e c o n o m i c decline o f the
U K c a n t h e r e f o r e b e seen as c o n t r i b u t i n g t o its r e d u c t i o n i n i m p o r t a n c e as
a n I r i s h t r a d i n g p a r t n e r . T h e fact t h a t its d e c l i n e as a d e s t i n a t i o n f o r I r i s h
e x p o r t s p r e c e d e d 1973 is c o n s i s t e n t w i t h t h i s .
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