The purpose of this empirical analysis is to investigate, based on gravity model, Cameroon’s bilateral trade flows with Twenty-Eight European Union countries signatories of the EU-Cameroon Free Trade Agreement (FTA) on the 15th of January 2009. Though the said Agreement entry into force day was scheduled for the 4th of August 2014, it is important to analyze the trade trends among these 29 countries. The research findings reveal that Cameroon’s bilateral trade with European Union countries is affected positively by economic size and per capita GDP, and influenced negatively by the distance between the trading partners. The result of basic the gravity model reveals that the Product of two countries’ GDPs has positive and significant impact on bilateral trade, indeed, a 1 percent point increase in product of the GDPs leads to increase in the bilateral trade volume of Cameroon with the concerned trade partners by 1.2808 percent and about the distance factor, 1 percent point increase in distance leads to decrease the bilateral trade volume of Cameroon by 2.0306 percent.
With the vision 2035, Cameroon Government, like most of those of developing nations, has an objective to achieve sustainable economic development and the poverty reduction. As International trade appears to be one of the means available to developing nations to reach such goals, they can attempt to reduce poverty by raising its share in the world’s total exports. Therefore it is important to explore the major determinants of Cameroon’s bilateral trade volume.
It is unavoidable to affirm that countries are more closely linked through trade. For the past 20 decades we have seen a tremendous change in international trade policies, new strategies like free trade, trade liberalization are more often mentioned in public’s news.
To give an answer to the question why countries trade, [
Reference [
As in [
Even having developed models on international trade, classical and new trade theory do not answer the question of size of the trade flows and that is where the gravity model comes in. For instance, [
The main objective of the current study is to test the applicability of gravity model to bilateral trade flows in case of EU-Cameroon. Gravity analysis is intended to be used for deriving important implications regarding Cameroon’s trade policy.
The classical and new trade theory can successfully explain the reasons for countries to enter the World Trade; but they cannot answer the question of the size of the trade flows. Another trade theory, the gravity model, which has been used intensively in analyzing patterns and performances of international trade in recent years, can be applied to quantify the trade flows empirically. The model applies Newton’s universal law of gravitation in physics, which states that the gravitational attraction between two objects in proportional of their masses and inversely to square of their distance.
Reference [
After the theoretical foundation of gravity model had been established, in the 1990s, further studies concentrated on its empirical application. In Reference [
The research of [
Reference [
In his research paper on gravity model analysis of Egypt’s trade, El-Sayed in [
In the reference [
EU Development Commissioner Louis Michel in [
With the above development the EU and Cameroon concluded negotiations on an interim Economic Partnership Agreement in 2007 [
The
According to [
He continues saying that all European policies answer to the private interests of a few large financial and industrial groups in a very dangerous mixture of Thatcherism Liberalism and Reaganism. European politicians are only SRU (Sellers-Representatives-Ushers) of these oligarchies which, with assistance from the political system of universal suffrage, finance the election campaigns of the politicians, who then return the favor by passing laws to enslave their own citizens, reduced to a simple peons who must pay even for the air they breathe, in a machine which applies continuous pressure and prevents them from thinking or even revolting. The only alternative left for the citizen is suicide, as it is now the scourge of farmers across the European Union. In France, for example, every two days, one farmer commits suicide, driven to desperation by the oligarchs who control everything from fertilizer to supermarkets and even the toll highways. In any case it appears that the Thursday October 10th 2013 publication made by the Institute of Health Surveillance (INVS) as part of what the Institute
calls “The plan for suicide prevention in agriculture announced by the Ministry of Agriculture in March 2011”. And according to this report, the first official study on this very taboo topic in Europe on the farmers’ suicide, a farmer commits suicide every two days in France. Between 2007 and 2009, nearly five hundred farmer suicides that have been recorded. During this period, 417 men and 68 women who have committed suicide, because the fruit of their labor is not even allowed to repay the debts that the system was ha forced them to contract, supposedly, to improve their competitiveness by purchasing very expensive machines. While at the same time these same oligarchs (supermarkets) purchase at very low prices, fixed and imposed by the buyer, the milk or meat sold on shelves around the world.
Another example to illustrate the negative impact of the FTA can be seen prior to the signing of North American Free Trade Agreement (NAFTA) in 1994, when Canada was convinced it could profit from exporting cattle into the US, but now finds herself trapped by the unanticipated consequences. The debate in Canada at that time was naturally focused on the fact that US manufacturing would spill over into Canada. So, politicians in their calculations had concluded that the game was worth the gamble. But they had not anticipated that with this agreement, they simply would be swallowed by intrigues and predatory techniques of their American neighbor. They hadn’t expected the perversions of any free trade agreement that in the end, it is the most ultraliberal party who wins. In a country where the population is small, only the construction of a strong State can preserve a better tomorrow, prosperity for all. But when engaging in an agreement which early-on announces its colors and portends to weaken the powers of the State and thence the purchasing power of its citizens, then we on track towards settling for a new and more insidious form of colonization whose name we dare not speak [
Although panel data have certain advantages (e.g. panels can capture the relevant relationships among variables over time, and panels can monitor unobservable trading-partner-pairs individual effects), classical gravity model generally uses cross-section data to estimate trade effects and trade relationships for a particular time period, for example one year. Empirical literature of the gravity model using cross-section data is also huge. Further, [
For estimation of the gravity model, we have followed [
where
Tradeij = Value of total trade between Cameroon (country i) and country j;
GDPi (GDPj) = Gross Domestic Product of country i (j);
PCGDPi (PCGDPj) = Per capita GDP of Country i (j);
Distanceij = Distance between country i and country j;
Comlang_off = Common official language (dummy variable);
Colony = Colonial relationship (dummy variable);
ξij = is the regression error term.
As suggested by the economic theory, we expect positive signs for β1, β2, β4 and β5 and a negative sign for β3.
Following are the hypotheses of this study:
・ Trade volume of Cameroon with trade partners increases with increasing product of their economic sizes.
・ Trade volume of Cameroon with its trade partner is significantly and negatively affected by the geographical distance between them.
・ Common (official) languages between its trade partners positively affect trade volume.
・ Colony history between its trade partners has a positive and significant impact on the trade volume.
The list of the Twenty-Eight European Union countries chose for this study is provided on
The data are collected for the period of 2008 and 2012. All observations are annual. Data has been taken from Economic Outlook Database of IMF (2014). Annual data on trade (TR) is taken at constant 2000 US dollars. Annual data on Gross Domestic Product (GDP) and Per Capita (PC) is taken to measure the economic size of the economy based on Purchasing Power Parity. The distance variable (DST) represents the geographical distance between Cameroon’s capital and its partner’s capital. Bilateral distances and common (official) language come from the CEPII distance database (http://www.cepii.fr/anglaisgraph/bdd/distances.htm). An attempt to capture the impact of official language similarity has been done by this study. A dummy variable (comlang_off) is used for this purpose. Unity (1) is for the partners who have the same official language than Cameroon and zero (0) if not. Another dummy (colony) equal to unity for those countries that were ever in a colonial relationship with Cameroon has been used. There is evidence from the gravity model literature that each of these factors can sometimes exert a significant impact on trade flows, presumably because they increase or decrease the costs of moving goods internationally.
The Hausman test for fixed versus random effects model shows a very high probability (0.9513), so we have to choose the Random Effects. Then, we perform the Breusch-Pagan LM test for random effects versus OLS. The P-value is very small (0.000), which means we shouldn’t be using Pool OLS model, we should be using other individual specific effects. So, the explanation we to follow will consider the Random Effects estimates.
According to the results of Random Effects estimates for the gravity Equation (1), R-squared value is 0.7680 which indicates that the overall performance of the model is really good. The coefficient of determination (R2) suggests that seventy six percent variations in the dependent variable are being explained by the explanatory variables. Significance of the model reveals that the bilateral trade flows of Cameroon is better explained by gravity model. Also, it is found to be well applicable to a single country case.
Estimation of gravity equation gave signs of coefficients as predicted by the economic theory. Result of basic gravity model revealed that Product of two countries’ GDPs has positive and significant impact on bilateral trade. Its coefficient is 1.2808 and is significant at one percent level of significance. Its coefficient can be interpreted as keeping all other variables constant, a 1 percent point increase in product of the GDPs will on average lead to increase the bilateral trade volume of Cameroon with the concerned trade partners by 1.2808 percent. The product of the two countries’ per capita GDPs also has positive and significant effect on bilateral trade at one percent level of significance. The value of its coefficient is estimated to be 1.7387 with a positive sign as was expected and can be interpreted as keeping all other variables constant, a 1 percent point increase in product
Countries | |||
---|---|---|---|
Austria | Estonia | Italy | Portugal |
Belgium | Finland | Latvia | Romania |
Bulgaria | France | Lithuania | Slovak Republic |
Croatia | Germany | Luxembourg | Slovenia |
Cyprus | Greece | Malta | Spain |
Czech Republic | Hungary | Netherlands | Sweden |
Denmark | Ireland | Poland | United Kingdom |
Pool OLS | Fixed Effects | Random Effects | ||||
---|---|---|---|---|---|---|
Explanatory variables | Coef. | P > |t| | Coef. | P > |t| | Coef. | P > |z| |
Constant | −3.5798 | 0.059 | −9.933 | 0.586 | −4.3004 | 1.137 |
log(GDPi∙GDPj) | 1.3046 | 0.000 | 1.7959 | 0.44 | 1.2808 | 0.000 |
log(PCGDPDij) | 1.6262 | 0.000 | 1.2442 | 0.717 | 1.7387 | 0.001 |
log(Distanceij) | −2.0127 | 0.000 | (dropped) | (dropped) | −2.0306 | 0.000 |
Comlang_off | 0.2288 | 0.110 | (dropped) | (dropped) | 0.1665 | 0.490 |
Colony | 0.1981 | 0.476 | (dropped) | (dropped) | 0.2692 | 0.585 |
R2 | 0.7685 | 0.6837 | 0.7680 | |||
R2adj | 0.7597 |
Source: Author’s estimation.
of the per capita GDPs will on average lead to increase the bilateral trade volume of Cameroon with the concerned trade partners by 1.7387 percent. Distance variable is having negative sign with its coefficient value of 2.0306 and is found significant at one percent level of significance. Coefficient of the distance variable can be interpreted as keeping all other variables constant, a 1 percent point increase in distance will on average lead to decrease the bilateral trade volume of Cameroon by 2.0306 percent.
The dummies variables Comlang_off and Colony which are representing respectively the common official language and colonial relationship of any European Union country trading partner resulted to be non significant. They both have a positive coefficient respectively of 0.1665 and 0.2692 as predicted by the model. The simple meaning of the statistical insignificance implies that language and colonial relationship is not affecting Cameroon’s and its trading partner bilateral trade volume. This is because of external interferences in formulation and setting of international trade relations. History shows that our trade policies and trade pattern are always dominated by third parties. These external interventions are made for achieving certain political goals. In addition, Cameroon’s imports mainly comprise of technological items and it is well known that developed and large economies are the main exporters of technology.
In order to explore the unrealized trade potential of Cameroon with its trade partners, trade volumes which are estimated from gravity equation are compared with the actual trade volume for the year 2012.
Difference between predicted and actual trade volume for a specific trade partner for the year 2012 will represent the unrealized trade potential with it. Ratio of actual trade to predicted trade is taken for exploring the unrealized trade potential of Cameroon with its each European Union trade partner. These ratios are presented in
A lower ratio country indicates a better partner for Free Trade Agreement (FTA). This will confirm that the elimination of trade barriers through FTA will lead to realization of the unexhausted trade potential, resulting in a larger expansion of trade by Cameroon. Countries with a ratio (in %) lower than 100 haven’t realized their full trade potential with Cameroon.
Our results reveal that Cameroon’s bilateral trade with the Twenty-Eight European Union countries is affected positively by economic size and per capita GDP, and negatively by the distance between the trading partners. The estimated results also show that, with the Twenty-Eight European Union countries signatories of the EU- Cameroon Free Trade Agreement, Cameroon hasn’t realized its full trade potential with half of them namely Austria, Croatia, Czech Republic, Denmark, Estonia, France, Germany, Hungary, Italy, Poland, Romania, Slovak Republic, Sweden and United Kingdom.
Finally, as EU-Cameroon FTA effectively entered into force the 4th of August 2014, time is needed to evaluate it again. As Cameroon is aiming to boost it economic growth thus the size of the whole economy, this FTA
Countries | Log actual trade flow (TR) | Log predicted trade flow (PTR) | TR/PTR (%) |
---|---|---|---|
Austria | 0.854593457 | 0.854593457 | 85.45934575 |
Belgium | 1.060753958 | 1.060753958 | 106.0753958 |
Bulgaria | 1.017143295 | 1.017143295 | 101.7143295 |
Croatia | 0.967810272 | 0.967810272 | 96.78102723 |
Cyprus | 1.040575735 | 1.040575735 | 104.0575735 |
Czech Republic | 0.916210121 | 0.916210121 | 91.62101214 |
Denmark | 0.943713413 | 0.943713413 | 94.37134133 |
Estonia | 0.972286651 | 0.972286651 | 97.22866514 |
Finland | 1.026816116 | 1.026816116 | 102.6816116 |
France | 0.970345701 | 0.970345701 | 97.03457007 |
Germany | 0.866943931 | 0.866943931 | 86.69439307 |
Greece | 1.036425953 | 1.036425953 | 103.6425953 |
Hungary | 0.951414266 | 0.951414266 | 95.14142664 |
Ireland | 1.030929763 | 1.030929763 | 103.0929763 |
Italy | 0.947696114 | 0.947696114 | 94.76961135 |
Latvia | 1.164781692 | 1.164781692 | 116.4781692 |
Lithuania | 0.994438 | 0.994438 | 99.44379997 |
Luxembourg | 1.000135143 | 1.000135143 | 100.0135143 |
Malta | 1.196343421 | 1.196343421 | 119.6343421 |
Netherlands | 1.042269704 | 1.042269704 | 104.2269704 |
Poland | 0.904435142 | 0.904435142 | 90.44351417 |
Portugal | 1.183858646 | 1.183858646 | 118.3858646 |
Romania | 0.986192868 | 0.986192868 | 98.61928682 |
Slovak Republic | 0.938234539 | 0.938234539 | 93.82345393 |
Slovenia | 1.120196248 | 1.120196248 | 112.0196248 |
Spain | 0.995980351 | 0.995980351 | 99.5980351 |
Sweden | 0.920595297 | 0.920595297 | 92.05952972 |
United Kingdom | 0.909955803 | 0.909955803 | 90.99558033 |
Source: Author’s estimation.
might be advantageous for it economy. Further research is needed to assess the required production specialization in this exchange.
Eric DoumbeDoumbe,ThierryBelinga, (2015) A Gravity Model Analysis for Trade between Cameroon and Twenty-Eight European Union Countries. Open Journal of Social Sciences,03,114-122. doi: 10.4236/jss.2015.38013