The Gravity Model of Trade Do Size and Distance Matter...

THE GRAVITY MODEL OF TRADE 1 Assignment 1: The Gravity Model Of Trade: Do Size And Distance Matter For The Exports Of Japan? THE GRAVITY MODEL OF TRADE 2 Abstract In the field of international economics, the gravity model for trade reveals that bilateral trade is directly proportional with the extent of the economy (usually expressed in GDP) and inversely proportional with the geographical distance between the analysed entities. The present report illustrates the model for the case of Japan, elaborating the trade patterns created among it and its 9 main trade partners. The parameters for the gravity equation are estimated and the relation between GDP and exports for the countries in question are depicted through a scattered†¦show more content†¦GDP: mean= 1556897.3, standard deviation= 2417090.79 Exports: mean= 58211.7, standard deviation= 52047.57 Distance: mean=4319060.7, standard deviation= 3462913.81 The results obtained depict that the model it is indeed verified, but the correlations are not strong enough in order to fully explain the patterns of trade between Japan and its 9 main trade-partners. Nevertheless, we can ob serve that both distance between countries and the size of one country’s economy are factors that influence the trade between two states. THE GRAVITY MODEL OF TRADE 5 References: American Economic Association, JEL Classification Codes Guide. Retrieved October 6, 2012 from: http://www.aeaweb.org/jel/guide/jel.php Centre dEtudes Prospectives et d’Informations Internationales (CEPII) (2011). Geodesic Distances. Retrieved on October 6, 2012 from: http://www.cepii.fr/anglaisgraph/bdd/distances.htm International Monetary Fund. (2012). International Financial Statistics Yearbook 2012. Washington, DC: International Monetary Fund Krugman, Obstfeld, and Melitz (2012), International Economics Theory Policy, (9th edition), Pearson Education United Nations. (2011). 2011 International Trade Statistics Yearbook. New York: United Nations. Retrieved on October 14, 2012 from: http://comtrade.un.org/pb/CountryPagesNew.aspx?y=2011 United Nations Statistics Division, Countries or areas, codes and abbreviations. 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