Tradeflow Study - UNDP Black Sea Trade and Investment Promotion ...

.
country I and country j’s capital (or main) cities. Conflict data is obtained from the Heidelberg
Institute for International Conflict Research. With respect to languages, if two countries share
a common main language, a value of 1 is given to the dummy variable; if two countries share
a common language which is the main language of one and a second language for the other,
then a value of 0.5 is given; and if both countries share a common second language, a value
of 0.25 is given. The data on a country’s latitude is obtained from the CEPII database. The
TradeSim model is described in detail in Helmers and Pasteels (2005).
The export potential is calculated using the regressions for all 19 sectors and for all BSEC
countries. The following notation is given to indicate the level of trade potential which exists in
each sector between each partner country.
: Very strong untapped trade potential;
: Strong untapped trade potential
: Good fit;
: Good fit or low values
: Very strong current trade;
: Strong current trade
The following abbreviations for countries have been used:
ALB: Albania
ARM: Armenia
AZE: Azerbaijan
BGR: Bulgaria
GEO: Georgia
GRC: Greece
MDA: Republic of Moldova
ROM: Romania
RUS: Russia
S-M: Serbia-Montenegro
TUR: Turkey
UKR: Ukraine
The limitation of the model is that it is based on a conditional general equilibrium framework
which does not capture dynamic effects nor cross country linkages. The static nature of the
equation therefore leads to the omission of second round effects from trade liberalisation. The
omission of countries or variables in the model will have an important effect on the model
results. Moreover, the model fails to capture sufficiently well trade complementarity effects in
weakly diversified economies (which are by their very nature specialized in just a few
commodities and therefore appear to over trade in some sectors and under trade in other
sectors).
96/135