Analysis of Albania’s Trade Direction: Is the Open Balkan a New Center of Gravity?

1

In my opinion, the title should be more precise. At this stage, the title is too general and rather confusing since the empirical analyses concern Albania. Moreover, the title seems to address only one research question (concerning the Open Balkan) and it does not reflect the full content of the paper.

UPDATED

The Reference list should be improved as there are some editing typos.

UPDATED

The empirical results are difficult to read and understand since there are several typos (‘Reference source not found’) in lines: 431, 440, 492, 499, 507, 513, 551, 555, 564, 571, 594. It seems that these missing references concern figures and tables.

UPDATED along all the manuscript.

In Fig. 2: the abbreviations are not explained.

UPDATED (section 4.1) - Is added the respective abbreviation for every country mentioned in the list.

In Fig. 3: Inconsistent notation: ‘Balkan’ and ‘Balcan’. It should be improved.

UPDATED (Figure 3)

Table 8 is not self-explaining since the titles of columns concerning the traditional and extended gravity models are the same. Therefore, it is difficult to analyse the empirical findings presented in this table.

UPDATED (Table 8)- It is added an extra title row with the appropriate clarification.

Reviewer

Comment

Answer

2

Data Representativeness:

How representative is the data set considering the exclusion of certain countries due to data unavailability? Could the exclusion of these countries introduce bias in the results? The manuscript mentions the deletion of countries with unavailable data for any indicators. This may impact the sample's representativeness and potentially bias the results if these countries have significantly different trade patterns.

UPDATED (section 4.2)

Only two countries, Andorra and Liechtenstein, whose data was not available for any of the indicators were deleted from the sample. However, the selected sample is enough representative as it contains more than 95% of the targeted partner countries. 

Model Specification:

Why were certain explanatory variables chosen for the extended gravity model, and were any potentially relevant variables omitted? The extended gravity model includes GDP per capita, exchange rate, and similarity indices. However, other relevant factors like political stability, trade policies, or technological advancements might also influence trade flows. How might the results change if these variables were included?

UPDATED (section 6)

Recent literature indicates that other factors, such as political stability, political tensions, trade policies, or technological advancement, can have a significant effect on determining a country’s trade patterns. This factor is seldom considered by existing studies that analyze Albanian exports and imports, and as a result, it can be an interesting objective of future research. However, since our main objective was to evaluate the effect of regionalism on Albanian trade volumes, we mainly focused on dummy variables that capture the role of existing (Western Balkan, CEFTA, and EU) or aimed (Open Balkan Initiative) Albanian multilateral trade agreements. The rest of the employed variables include indicators that are already found to be relevant in explaining Albanian tare patterns, as summarized in Table 1.

Methodological Concerns:

Adding 1 to trade values is a common fix but can introduce bias. Alternative approaches like the High-dimensional fixed effects (HDFE) and Heckman selection model could provide more accurate estimates. Given the use of log-linearization to handle zero trade values, how significant is the introduced bias by adding 1 to all trade values?

UPDATED (section 4.2)

This adjustment was based in the analysis of Bellégo et al. (2022) that highlight the popularity of this approach with the assumption of small bias. Their analysis indicate that this popular fix that treats zero observations equally to the non-zero ones, although fundamentally flawed, can lead to qualitatively acceptable results. Alternative approaches like the High-dimensional fixed effects (HDFE) and Heckman selection model could provide more accurate estimates. However, this work employs the popular fix method in order to have comparable results with existing works that generally employ the same, as well as to avoid difficulties in finding identification restrictions or exclusion of variables (Gómez-Herrera, 2013).

It is important to mention that this transformation was done only for OLS random estimators in order to verify the robustness of the results. Meanwhile, the main results were estimated based in the PPML method that does not require the popular fix.

Internal Validity:

How confident are you in the study's internal validity, considering the potential endogeneity issues in the gravity model? Have any robustness checks or sensitivity analyses been performed to validate the results?

External Validity:

The study focuses on Albania, but the trade dynamics in other Western Balkan countries might differ. Assessing the generalizability of the findings is important for broader policy implications. Also, the Open Balkan initiative and other regional agreements might have different impacts on other countries due to varying economic conditions, political stability, and levels of integration. To what extent can the findings be generalized to other Western Balkan countries or regions? Are there unique economic or trade dynamics in Albania that may limit the applicability of the results to other contexts?

UPDATED (section 6)

Western Balkan countries share several economic similarities as they represent small and underdeveloped countries whose level of investment, and consequently growth, is highly dependent on foreign savings. Trade is generally limited by poor transport infrastructure, trade barriers, corruption, and political tensions. However, the common objective is to catch up with the EU economies, and there is total agreement to reach it through intra-regional economic integration (Kaloyanchev et al., 2018). In this context, the EU represents by far the main trading partner of WB countries, followed in second place by the intra-regional market (Pere & Ninka, 2017). However, generalizing the results of this paper to other WB countries should be taken with reserves as these countries have different levels of industrialization, consumer demand, economic and technological development, size, and population.

External Validity:

Proper citation of all referenced works is crucial for academic rigor and to support the claims made in the manuscript. It also helps readers trace the sources and validate the research. I find it unacceptable that the manuscript lacks citations or verification for many references. Could you provide citations for all referenced works to ensure proper acknowledgment and to support the study's credibility?

UPDATED

Reviewer

Comment

Answer

3

1- The abstract should have at least one sentence per each: context and background, motivation, hypothesis, methods, results, and conclusions.

Updated with hypothesis and conclusion

2- The considered references are not up to date; there is no reference from the current year (2024); so it is not possible to confirm the novelty and contributions of the paper appropriately. You need to consider the last papers in this field to validate the research motivation and novelty.

Updated with papers published in the last year.

3- An illustration is required to clarify the research framework and stages. Also, provide a geographical map to show the case study and related information (about Trade) more visible and attractive for the readers.

UPDATED (section 3 and 4)

As suggested, we updated the manuscript with figure 1 and 5.

4- The research gap that tried to be addressed in this paper is not highlighted. It could be added to the last part of the literature review.

The research gap, research questions, objectives are highlighted in the end of section 1.

5- There are some Error! Reference source not found in lines 492, 499, 513, etc.

UPDATED

6- In Table 1, Author should be Author(s); some abbreviations are used in the Model column, while they are explained in the next section, such as FE, RE,etc. Add a new row at the end of the table and add your research details int the same style; in the way, the readers can compare your research with the existing literature easily.

Table 1 is updated for the requested components.

7- Section 3 is too long; such as a book chapter. Is there any suggestion or development in these models by you?

Section 3 summarizes the existing traditional and extended gravity models, explains how are build several explanatory indicators, and discusses several econometric issues that are related to the model estimation. For more, the first part of it is updated with the research framework and stages (as requested).

8- For each table and figure, you must have some explanations in the contents. For example, you must mention Table 1, Table 2, ... in the last paragraph and explain about it.

UPDATED

9- Why did you choose these countries?

As explained in section 4.1, considering that the focus of this work is the effect of regional integration of Albanian trade flows, we introduced the term “strategic partners” to present 43 regional partners presented in Table 2, which are European countries, members of the Council of Europe, or members of the EU Political Community. These countries are the destination for 93% of Albanian exports and countries of origin for 76% of Albanian imports, and these values are expected to grow as there are strong ties rooted in various EU strategies. Figure 4 and 5 illustrate in detail the weight of this countries in determining the Albanian import and export flows.

10- Discuss and Confirm the obtained results using the existing literature.

Done in section 5.2.1 and 5.2.2

11- Mention the research limitations and future scope.

Updated the last part of section 6.