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Journal of Economic Integration 2024 March;39(1) :107-150.
The Effect of Financial Development, Tariff, and RTA on Exports: A Structural Gravity Analysis

Syed Nazrul Islam1 Md. Shariful Islam2 Md. Rayhanul Islam 1 and Md. Ashraful Alam 1

1Bangladesh Bank, Dhaka, Bangladesh
2Bangladesh University of Professionals, Dhaka, Bangladesh
Corresponding Author: Syed Nazrul Islam ,Email:
Copyright ©2024 Journal of Economic Integration
This paper examines the effect of financial development (FD), tariffs, and RTA on bilateral exports in a structural gravity framework. Applying high-dimensional fixed effects in OLS and PPML estimation technique in a panel framework covering 169 countries over 2001-2017, this paper finds that FD of both exporters and importers are an important determinant for boosting exports. The EIA has the most trade creation effect than any other form of RTA. Importers' FD has a larger effect on bilateral exports for developed to developed and developed and developing country trade than that of the exporters. The trade between developing to developing countries is positively affected by both exporters' and importers' FD; and negatively to a larger extent by tariff measures. However, in the case of developing and developed country estimation, FD of the exporter country is significantly affecting bilateral trade. Tariffs significantly distort trade, largely between developing and developed countries.

JEL Classification
F10: General
F14: Empirical Studies of Trade
F15: Economic Integration
F36: Financial Aspects of Economic Integration
G20: General
Keywords: financial development | exports | tariffs | regional trade agreement | gravity model
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