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 Battle of Waterloo is a work of art with tension and drama with its unceasing change from hope to fear and back again, change which suddenly dissolves into a moment of extreme catastrophe, a model tragedy because the fate of Europe was determined within this individual fate.”
—Stefan Zweig (18811942)
“It passes, and we stay:
A quality of loss
Affecting our content,
As trade had suddenly encroached
Upon a sacrament.”
—Emily Dickinson (1830–1886)