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 model and/or trade:
“The playing adult steps sideward into another reality; the playing child advances forward to new stages of mastery....Childs play is the infantile form of the human ability to deal with experience by creating model situations and to master reality by experiment and planning.”
—Erik H. Erikson (20th century)
“My trade and my art is living. He who forbids me to speak about it according to my sense, experience, and practice, let him order the architect to speak of buildings not according to himself but according to his neighbor; according to another mans knowledge, not according to his own.”
—Michel de Montaigne (15331592)