Specify the variables, use an example of Canada and the USA, or Mexico and the USA

Home, - Describe the gravity model

Question: The Gravity Model

"The gravity model of international trade is able to predict trade flows between two countries based on two principal factors."

Describe the gravity model - specify the variables, use an example of Canada and the USA, or Mexico and the USA - both situations where the gravity model has been found to be accurate.


The gravity model holds a significant role in international economics briefing certain rules and working mechanism of international trade. Introduced in the year 1954, it is known to predict trade fuse between two countries on the basis of their economic sizes and distance. The formula for gravity model is

Fij = G*(Mi.Mj)/Dij

Fair, G is constant, if represents trade flow, M represents economic dimensions and masses, and the stands for the distance between the two units

The gravity model includes variables to consider language relationship, continuity, colonial history and exchange rate regiments. The two main variables of the gravity model are its economic masses and the distance between the two units. In recent times, gravity model has turned out to be a complex business solution in his latest developments taking place in the institution. However its comparative advantage lies in the fact that it is able in using real data for the assessment of sensitive trade lose between the trading countries. It takes into consideration several trading costs to assess its significant impact on the trade flows. This me include transportation costs, tariff and nontariff barriers, delays in scheduled export and trade facilitation, corruption charges and contract enforcement expenses

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