Q Apply the gravity model to the UK in the year 2021 - What countries are most important to the UKs trade relationships Home, - Apply the gravity model to India and China Question a. Define the gravity model. Specify the variables utilised. ANSWER a):Gravity model is the flow of trade bilaterally based on distance, population, and GDP per capita. Under the model, the tradeflow between two countries exists due to size of population and economy. The model helps in analysing the economy in terms of capital, services, movement of people, etc.(Ramos, 2016, pg. 1(1)). The variables utilised ingravity model include regimes of exchange rates, tariffs, contiguity, and access to sea, language relationships and colonial history. Gravity model is effectively utilised to measure the effect of migration policy, visa restrictions, and migration flows policy. Before the migration data was not easily available between two countries and now with the two way migration data availability, there is more analysis of migration and helped in analysing the two countries migration. b. Apply the gravity model to India and China. Why has it taken so long for India and China to become serious trading partners? Think of 18th century trade patterns, importation of raw materials back to the UK from their colonies. ANSWER b):Gravity model is directly proportionate to the population and GDP size. However, there is an inverse proportion of the physical distance just as the gravitational law developed by Newton (Ramos, 2016, pg. 1(1)).India and China trade intensity was very low due to low historical development of India in 19th century. Moreover, the export rate of India was also low and according to gravity model the negative sign was expected due to low dimension of trade and trade constraints which restricted China to trade with India pre-Independence. The economic prospects of India were also not good in comparison of China and China was already exporting to developed countries in large volume. Later India showed after independence a free trade and excess export of raw material to Britishbut there were no sign of enhancement in economic prospects. The essence of 19th century colonialism impacted India and lead to huge transformation where India started supplying raw materials and food stuff to manufacturers of British.India is already sharing border with china however, due to difference in GDP size and population there were delayed in start of trade between China and India. Trade patterns between India and China showed the colonial relationship.Ultimately India has limited manufacturing capabilities in 19th century which could not fuel the china manufacturing and thus it took time for China to start trading with India. c. Apply the gravity model to the UK in the year 2021. What countries are most important to the UK's trade relationships? ANSWER c): The major trade partner of UK isGermany, Netherlands, France and United States. In 2021 there was huge disruption from coronavirus which caused some negativity in the trading of UK with other countries.UK had critical market with America and remained key destination for America to export goods to UK. Due to close geographical distance and also proportionate GDP volume, UK imported goods from US and known as number one trading partner of America. However, after Brexit and COVID 19, UK faced border restrictions which increased the overall cost of foreign trade. UK travellers also like to visit US which attract a positive relationship between US and UK as per gravity model(trade.gov., 2021, pg.1(4)). There is also similarity in culture and language which attract US as effective trade partner of UK. UK had other trade partners such as France, Germany, Netherlands and China which covered around 42% of trade in goods with these countries. Due to great production capacity of japan and Germany, UK imported road vehicles and imported machinery materials from Australia(ons.gov.uk, 2022, pg.1(2)). China has also been highest in trading list of UK in 2021 under free trade agreements. Related: Define absolute advantage and comparative advantage Why these demonstrations were mostly directed at the IMF How an export subsidy is theoretically meant to work Apply the gravity model to India and China How can MNEs act ethically in host countries Discuss marginal product of labour
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