Non‐trade in the MENA revisited: systematic review and gravity analysis, by Libby Lahar, Binyam A. Demena, Peter A.G. van Bergeijk

Abstract                          

This working paper deals with the comparatively low levels of trade in the MENA region with a focus on the impact of the Palestinian Israeli conflict. The methodological focus is on the application of the gravity model for international trade.
We provide an innovative systematic review that does not only use the standard approach (search engine search) but also identifies primary studies by means of expert interviews. We identify 118 studies of potential relevance.

We identify best practices and review estimates on trade potential. In terms of citations reported in Google Scholar a study by Arnon, Spivak and Weinblatt (published in World Economy 1996) is the most influential paper on this topic. The last year for which a trade potential estimate according to our systematic review is available is 1999. This paper fills this gap by providing estimates for the year 2019.

We first replicate, extend, and update the study Arnon, Spivak and Weinblatt taking best practices as identified by the systematic review into account. Based on the best practice identified in the systematic review we estimate a panel PPML gravity model for 76 countries and the years 1991-2019 inclusive. Next, we use two alternative approaches to estimate the intra MENA trade potential that could be reaped as a consequence of a geopolitically more stable and open Middle East. In the year 2019 this ‘pot of gold’ in percent of intra MENA trade amounts to 10% to 54% (import based) and 21% to 48% (export based), respectively. These estimates are lower than those reported in the earlier literature. The conclusion is that an economically significant trade potential still exists.

Keywords

Trade, systematic review, gravity, PPML, MENA.

JEL codes: F5, F14, N74, O19.

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