ADJACENTij is a dummy variable, which takes the value of 1 for provinces i and j to have a common border and 0 otherwise. ETHNIC56ij represents the extent to which the ith and jth provinces are ethnically linked each other (details about the measurement are discussed in Equation 4.6).
Note that because ETHNIC56 is a comprehensive index for all of China’s 56 ethnic groups, it can only be used to derive a general pattern of correlation between interprovincial trade and ethnic linkage. If we want to examine the role that each ethnic group plays, the gravity model can be now written as the following:(4.2)ln(TRADEij)=α0+α1ln(GDPiGDPj)+α2ln(GDPPCiGDPPCj)+α3lnDISTANCEij+α4ADJACENTij+∑k=137βkETHNICijk
In Equation 4.2, ETHNICijk represents the extent to which the kth ethnic group is linked between the ith and jth provinces (details about the measurement will be discussed in Equation 4.5). We only include 37 ethnic variables in this equation.