Hofstede’s cultural dimensions in the gravity model using mixed-effect model

Abstract

According to the gravity model, the closer the distance between two countries, the trade activity between those countries will be greater. This research aims to know whether the gravity model works on Indonesian export value in 2002-2019. Besides the distance, this research also study the effects of population, per capita PPP GDP and Hofstede cultural dimensions. The research was done using a mixed-effect model. The results of this study show that together, population, per capita PPP GDP, distance and Hofstede cultural dimensions have significant effects on Indonesian export value. The gravity model is proven in this study because distance has a negative effect on export value. Individually, population, per capita PPP GDP and long-term orientation index have a positive significant effect while masculinity index has a negative significant effect on export value. Indonesian export values tend to be elastic toward per capita PPP GDP, population and the distance. This research also found that the effect of per capita PPP GDP has a random effect or its effect is difference among Indonesia’s main trade partners.