Gravity Model and Trade Flow of Selected 20 Countries

International Journal of Economics and Management Studies

© 2018 by SSRG - IJEMS Journal

Volume 5 Issue 3

Year of Publication : 2018

Authors : Sanjoy Kumar Saha, Nilufar Easmin, Partho Sarathi Laskar

10.14445/23939125/IJEMS-V5I3P104

How to Cite?

Sanjoy Kumar Saha, Nilufar Easmin, Partho Sarathi Laskar, "Gravity Model and Trade Flow of Selected 20 Countries," SSRG International Journal of Economics and Management Studies, vol. 5,  no. 3, pp. 22-30, 2018. Crossref, https://doi.org/10.14445/23939125/IJEMS-V5I3P104

Abstract:

 The paper attempted to estimate trade potential for 20 countries (among those countries 19 are OECD countries and China) using the gravity model approach. The gravity model has been estimated using the OLS technique with balanced panel data of 20 countriesincluding South Korea, China and Japan from year 2001 to 2014.The dependent variable in this study is the bilateral trade flows (in US dollars), in log form, between pairs of countries. Traditional gravity models presented in the paper proved that GDP, distance and exchange rate are major significant factor for increasing international trade between those countries. Moreover we used a long set of control variables like area, population, common language, common religion, number of hours difference between the origin and destination countries, GDP per capita and entry cost to start the business etc to investigate the role of the factors that helps rising trade among those countries. Estimation results showed that common religion, entry cost, area of origin countries, population are significantly affected trade flows.

Keywords:

Gravity, landlocked, distance, exchange, trade.

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