Russian Domestic Trade: Applying the Gravity Mode for Rail Cargo Flows

This article uses the gravity model to explain the trade flows between the regions of Russia. The data used contains information on all rail freight flows in tonnes for the period 2012–2016. The authors discuss the assumptions that make the gravity model applicable for trade by one mode of transport. For the purpose of correct estimation of the gravity equation, the special method of obtaining trade values in rubles was developed. The coefficients of distance and gross regional products are close to the results of previous studies on international and domestic trade. Along with the distance factor, the average rail tariff variable was included in the model. The significance of the coefficients of both variables has confirmed that trade flows are determined not only by transport costs, but by other trade costs, too. The results suggest that the export volume of the sending region proportional to its output is positively related to the volume of bilateral domestic trade flows. Accounting for regional fixed effects has not changed the coefficients of distance and average tariffs significantly, indicating the robustness of the estimates. No proof has been found for the impact of infrastructure on trade. An institutional factor that can negatively affect the trade volume is the level of corruption in the recipient region.