Economic activity, trade flow and gravity model

Temjanovski, Riste and Georgieva Svrtinov, Vesna (2013) Economic activity, trade flow and gravity model. Yearbook, Faculty of Economics, Goce Delcev University - Stip, 5 (1). ISSN 1857- 7628

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Abstract

A gravity model is a statistical model that estimates a country’s trade flows to other countries based on the economic characteristics of two trading partners. The basic prediction of the gravity model is that any two countries will trade more with each other when their combined GNPs are larger and the geographical distance between them is smaller. Gravity model, in its basic form, assumes that trade between countries can be compared to the gravitational force between two objects: it is directly related to countries’ size and are inversely or negatively related to the distance between them. Many economists use gravity models to try to predict which countries will tend to trade with each other. The gravity model was created to anticipate the volume of traffic between two places, migration between cities, the number of telephone calls, the transportation of goods and mail, and other types of movement between places. The gravity model can also be used to compare the gravitational attraction between two neighborhoods (cities, states, regions, continents). Gravity model applies the gravitational force theory as an analogy to explain the volume of trade, migration, capital flows, and products differentiation between different entities. Key words: gravity model, neighborhoods activity, capital flow, geographical entities

Item Type: Article
Subjects: Social Sciences > Economics and business
Divisions: Faculty of Economics
Depositing User: Riste Temjanovski
Date Deposited: 10 Feb 2014 10:21
Last Modified: 10 Feb 2014 10:21
URI: http://eprints.ugd.edu.mk/id/eprint/9139

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