The gravity model of trade in international economics, similar to other gravity models in social science, predicts bilateral trade flows based on the economic sizes of (often using GDP measurements) and distance between two units. The model was first used by Tinbergen in 1962. The basic theoretical model for trade between two countries (i and j) takes the form of:
Where F is the trade flow, M is the economic mass of each country, D is the distance and G is a constant. The model has also been used in international relations to evaluate the impact of treaties and alliances on trade, and it has been used to test the effectiveness of trade agreements and organizations such as the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO).
Read more about Gravity Model Of Trade: Theoretical Justifications and Research, Econometric Estimation of Gravity Equations, Quantization of Gravity Equations
Famous quotes containing the words gravity, model and/or trade:
“Grown beyond nature now, soft food for worms,
They lift frail heads in gravity and good faith.”
—Derek Mahon (b. 1941)
“If the man who paints only the tree, or flower, or other surface he sees before him were an artist, the king of artists would be the photographer. It is for the artist to do something beyond this: in portrait painting to put on canvas something more than the face the model wears for that one day; to paint the man, in short, as well as his features.”
—James Mcneill Whistler (1834–1903)
“A nose, kind sir! Sure, Mother Nature,
With all her freaks, ne’er formed this feature.
If such were mine, I’d try and trade it,
And swear the gods had never made it.”
—Susanna Moodie (1803–1885)