REGIONAL COOPERATION AND ECONOMIC INTEGRATION

PART III:
Consequently, the model is firstly estimated using the entire sample of 87 countries and
then estimated on sub-samples, based on country of origin. 5
Another contribution of this paper is that it introduces a model which is reminiscent of
the generalized gravity equation. This model is grounded on the theoretical suppositions
of the Ortega and Peri (2009, 9-13) migration model, allowing for unobserved individual
heterogeneity between migrants and non-migrants. Namely, migrants systematically differ
from non-migrants along important dimensions that are hard to measure, such as for
instance ability, risk aversion, or the psychological costs of living away from home.
In accordance with the suppositions of the migration model, the main testable hypothesis
supposes that the stock (or inflows) of the migrant population in the destination country is
determined by the wage differentials between origin and destination country, where GDP
per capita of the destination countries is introduced as a proxy variable for labour income
differentials between origin and destination countries. The second testable hypothesis
supposes that the bilateral migration flows between the origin and sending country are
determined by size differentials, where the population of the destination country is used as
a proxy variable for size differentials. The third hypothesis supposes that bilateral migration
flows are related to income inequalities between the origin and sending countries, where the
Gini coefficient of the destination country is used as a proxy variable for income inequality
differentials.
An important contribution of this paper is the inclusion of alternative proxy variables in the
gravity model, which are introduced in order to confirm the robustness of the analysis and
to reinforce the generalized version of the gravity model. Thus the Gini coefficient of the
sending country is introduced as a proxy variable for income inequality differentials, the
population of the sending country is introduced as a proxy variable for size differentials,
and GDP per capita of the sending country is introduced as a proxy variable for wage
differentials between the two countries, with a negative sign on these variables expected.
The paper is structured as follows. Section Two presents the gravity model in its basic form,
reviews the theoretical literature, presents the Ortega and Peri (2009) migration model and
presents the empirical model used to analyse determinants of bilateral migration flows.
Section Three describes and presents the datasets, especially those on stocks and flows
of the migrant population in the destination countries and estimates the effects of wage
differentials, size differentials and income inequality differentials between the sending
and receiving countries by using a fixed effects estimator. Section Four provides some
concluding remarks.
1. Gravity model
1.1. The gravity approach
The gravity model is a mathematical device used for the analysis of bilateral trade flows
between different countries or geographical entities in empirical research. The gravity
approach says that attractiveness between two entities is proportional to the product of
5 These samples are: EU-15 member states, Central and Eastern European countries and the developing world.
204