Post-colonial trade between Russia and former Soviet republics: back to big brother?

2.2 The global component
The global factor ( g
t
) is the scale of the global economy, which plays a role of a scale 
parameter in the gravity equation, and it is equal to the sum of nominal incomes col-
lected either by i (or j) at time t:
In the era of globalization and intense integration, a country builds more trade link-
ages with other countries (through liberal reforms, trade agreements or trade unions, 
etc.) and becomes a part of bigger economy (global or regional economy). This way 
(5)
y
it
=
∑
j
c
ijt
p
ijt
=
∑
j
c
ijt
p
it
𝜏
ijt
.
(6)
P
it
=
(
∑
j
P
1
−𝜎
jt
𝜃
jt
𝜏
1
−𝜎
ijt
)
1
1
−𝜎
.
(7)
g
t
=
1
∑
i
y
it
=
1
∑
j
y
jt
.
9
This would also require domestic trade data.
Economic Change and Restructuring (2021) 54:877–918
888

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1 3
a country whose economic size is y
j
forms a part of World economy size ( ∑
j
y
j
) and 
depending on the countries relative to World economic size and nature of network-
ing, changes in (2) can affect the left-hand side of (1) either positively or negatively.
2.3 The dyadic component
The dyadic component ( d
ijt
) is a trade cost associated with physical and psychic dis-
tances (and quality) in each unique (specific) ijt set:
where trade costs, 𝜏
ijt
=
∑
m
�
z
m
ijt
�
𝛾
m
, comprise the combined effect of a series of bilat-
eral physical (geographic distances, transport mode, quality of transport infrastruc-
ture) and psychic (or non-physical) trade barriers (tariffs, quotas, language, etc., 
indexed m), and are assumed symmetric in both directions, and of ‘iceberg’ form 
(Samuelson 
1952
). The geographic distance between trading countries i and j com-
monly serves as a proxy for transport cost. Psychic distance is not directly observa-
ble, but can be proxied by a set of attributes (such as language barrier, adjacency and 
colonial history), which are commonly found to important in gravity-based studies. 
For instance, HMR (
2010
) used year dummies to capture the growing effect of inde-
pendence on trade relations between a former colony and metropole. However, some 
dyadic barriers (such as tariffs) can change from year to year while other types of 
barriers (geographic distances) would be constant.