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Open Economies Review

, Volume 17, Issue 4–5, pp 493–508 | Cite as

International Trade, OECD Membership, and Religion

  • Heejoon Kang
  • Michele Fratianni
Article

Abstract

Transaction costs in trade gravity equation are proxied by the distance that separates two trading partners, under the assumption that the distance elasticity is the same across all trading partners. We show that distance elasticity, however, critically depends on whether trading partners are industrial countries (i.e., members of the OECD) or share same religion. These heterogeneities are both statistically and economically significant. For instance, expected trade flows are the largest when an OECD member trades with a non-member and both are non-religious. Expected trade flows fall as much as by 62.9% between two non-religious, non-OECD members. Expected bilateral trade drops by 48.1% when both countries in the pair are OECD members while one is Christian and the other is Islamic. Both religion and OECD membership significantly affect the typical transaction costs implied by the gravity equation.

Keywords

gravity equation OECD membership religion trade flows transaction costs 

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Copyright information

© Springer Science + Business Media, LLC 2006

Authors and Affiliations

  1. 1.Kelley School of BusinessIndiana UniversityBloomington

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