Empirical Analysis of Multiple Infrastructural Covariates: An Application of Gravity Model on Asian Economies

Abstract

This study assesses the simultaneous influence of hard and soft infrastructural indicators on exports in 46 Asian states from 2001 to 2017 with panel data. We constructed two main aggregate indicators such as hard infrastructure and soft infrastructure with fifteen primary or sub-group variables. The infrastructural aggregate indicator contains four groups: transportation, communication, and financial infrastructural and border-transport efficiency. These indicators are taken into account in estimating the influence on export levels and probability between bilateral Asian trading partners by using factor analysis, the augmented gravity model and the two-stage sample selection model. Findings show that simultaneous improvement in hard infrastructure such as transport and telecommunication improved bilateral exports. Similarly, simultaneous improvement in soft infrastructure like financial infrastructure and border-transport efficiency increased bilateral exports in Asian countries. For both export and import, the coefficients of infrastructural indicators have a positive impact and are statistical significant at each econometric scale. Improving financial infrastructure is important in achieving a higher level of trade volume and increasing the probability of exporting between partners. We also examine the evidence on the complementarity or substitutability between hard and soft infrastructure as captured by indicators which shows us that main aggregate indicators have a lower impact on exports.