The of international trade explains how countries trade based on their and from each other. Like planets attracting each other, bigger economies trade more, while greater distances reduce trade flows.
Other factors like shared languages, borders, and also influence trade patterns. This model helps economists understand and predict trade relationships between countries, though it has some limitations in capturing all real-world complexities.
Gravity Model of International Trade
Principles of gravity trade model
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Frontiers | Enhanced Gravity Model of Trade: Reconciling Macroeconomic and Network Models View original
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Frontiers | Enhanced Gravity Model of Trade: Reconciling Macroeconomic and Network Models View original
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Frontiers | Enhanced Gravity Model of Trade: Reconciling Macroeconomic and Network Models View original
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Frontiers | Enhanced Gravity Model of Trade: Reconciling Macroeconomic and Network Models View original
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Top images from around the web for Principles of gravity trade model
Frontiers | Enhanced Gravity Model of Trade: Reconciling Macroeconomic and Network Models View original
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Frontiers | Enhanced Gravity Model of Trade: Reconciling Macroeconomic and Network Models View original
Is this image relevant?
Frontiers | Enhanced Gravity Model of Trade: Reconciling Macroeconomic and Network Models View original
Is this image relevant?
Frontiers | Enhanced Gravity Model of Trade: Reconciling Macroeconomic and Network Models View original
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Frontiers | Enhanced Gravity Model of Trade: Reconciling Macroeconomic and Network Models View original
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Economic model explains flows between countries
Inspired by Newton's law of universal gravitation
Assumes trade flows proportional to economic sizes and inversely proportional to distance between them (U.S. and China)
Key assumptions of the gravity model:
Countries with larger economies tend to trade more with each other (U.S. and Canada)
Trade flows decrease as distance between countries increases (U.S. and Australia)
Other factors influence trade flows
Common language (U.S. and U.K.)
Shared borders (U.S. and Mexico)
Trade agreements (NAFTA)
Determinants of bilateral trade flows
of trading partners
Measured by GDP or
Larger economies have greater capacity to produce and consume goods and services (U.S. and Japan)
Geographical distance between trading partners
Proxy for transportation costs, time, and other trade barriers
Greater distances tend to reduce trade flows (U.S. and Brazil)
Other determinants of bilateral trade flows:
Common language and cultural similarities (U.S. and Australia)
Shared borders and contiguity (U.S. and Canada)
Membership in trade agreements or economic unions (EU members)
Historical ties and colonial relationships (U.K. and India)
Interpretation of gravity model results
Gravity model estimated using log-linear regression equation: