appropriate model than random specification. The eleven importer countries are selected for the period 1998 - 2011.
4.4 Model Formulation
There are two codes of cocoa which will be analyzed in this paper. Those are HS 1801 and HS 1804. Determination of these codes based on the two highest
cocoa export of Indonesia.
4.4.1 Model Formulation of HS 1801 Cocoa Beans, Whole or Broken, Raw
or Roasted
Analysis used in this research is Gravity Model approach which consists of Dependent variables and some Independent variables. Independent variables
used are GDP of exporter and importer countries, population of exporter and importer countries, physical distance, exchange rate and export tax.
We will divide Analysis of code HS 1801 Cocoa beans, whole or broken, raw or roasted into two analyses. Firstly, export tax is treated as dummy variable
and secondly, export tax is analyzed as percentage value. It is intended to know the effect of the export tax to European Union as whole, before and after export
tax policy and also the effect of export tax in percentage value to trade flows export value. The model formulation could be written as follows:
ln Y
ijt
= β + β
1
lnG
it
+ β
2
lnG
jt
+ β
3
lnS
it
+ β
4
lnS
jt
+ β
5
ln E
ijt
+ β
6
lnL
ij
+ β
7
T
t
+ ε where:
β =
Intercept β
1
, β
2
, β
5
= Parameter of each variable which will be tested statistically and
econometrically t
= 1,…,T between 1998 – 2011
i,j =
1,…,N Bilateral trades between country i and j Y
ijt
= Trade flows Export Values of Cocoa from country i to j in the
year t G
it
= GDP of country i in the year of t
G
jt
= GDP of country j in the year of t
S
it
= Population of country i in the year t people
S
jt
= Population of country j in the year t people
E
ijt
= Exchange rate of country i and j in the year t
L
ij
= The distance between exporter countries and importer countries
Kilometres T
= Export Tax dummy and percentage
ε =
Error
4.4.2 Model formulation of HS 1804 Cocoa Butter, Fat, and Oil
In case of cocoa HS 1804, we still use the same variables with cocoa HS1801. Since there is no export tax imposed on this cocoa code, here we
eliminate export tax variable. Independent variables used are GDP of exporter and importer countries, population of exporter and importer countries, physical
distance, and exchange rate. The model formulation could be written as follows Y
ijt
= β + β
1
lnG
it
+ β
2
lnG
jt
+ β
3
lnS
it
+ β
4
lnS
jt
+ β
5
ln E
ijt
+ β
6
lnL
ij
+ ε where:
β =
Intercept β
1
, β
2
, β
7
= Parameter of each variable which will be tested statistically and
econometrically
