Market Integration and Energy Trade Efficiency: An Application of Malmqvist Index to Analyse Multi-Product Trade

Abstract

This paper uses the data envelope analysis method to investigate the Malmquist index-based gravity relationship between bilateral energy trade flows and their determinants throughout the world. Using a balance panel data of 40 countries between 1995 and 2008, this paper shows that market integration will increase energy trade by improving trade efficiency between trade partners, though allowing for a flexible substitution between different energy products tends to weaken these effects. This result highlights cross-product substitution and its implications for the aggregate energy trade pattern, providing insights on the importance of prioritising product-specific trade facilitating policies.

ERIA-DP-2014-20