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)
“The best way to teach a child restraint and generosity is to be a model of those qualities yourself. If your child sees that you want a particular item but refrain from buying it, either because it isnt practical or because you cant afford it, he will begin to understand restraint. Likewise, if you donate books or clothing to charity, take him with you to distribute the items to teach him about generosity.”
—Lawrence Balter (20th century)
“People run away from the name subsidy. It is a subsidy. I am not afraid to call it so. It is paid for the purpose of giving a merchant marine to the whole country so that the trade of the whole country will be benefitted thereby, and the men running the ships will of course make a reasonable profit.... Unless we have a merchant marine, our navy if called upon for offensive or defensive work is going to be most defective.”
—William Howard Taft (18571930)