4. Two countries with which the US conducts a large amount of trade are China and Mexico. The table below provides real GDP and the distance between countries in miles as well as the actual imports by the US from these countries in 2019. Use the 2019 import numbers given as the actual amount of trade between the US and China and the US and Mexico. Use the version of the gravity model where GDPw represents B. Start with the following parameters: n=.50 and GDPw = $87,652 billion. a. Try some different values for n and estimate the expected amount of trade between the US and China, and the US and Mexico based on the Gravity model. What single value for n provides a good estimate of both trading relationships? How different to the n's have to be in order to get a precise estimate of trade (do not go beyond two decimals)? b. Based on your answers in a. what is n telling us? Try changing the distance I provided for Mexico from the US (there is no magic in the 100 mile number I chose). What happens to predicted US Mexico trade as the distance approaches zero? Think of n acting as a proxy for trade frictions. 2019 Real GDP Distance from US ($billions) (Miles) Country China Mexico United States Global GDP n US - China Trade Prediction US-China Trade Actual US - Mexico Trade Prediction US - Mexico Trade Actual 20,572 4,623 19,036 87,652 7,245 100 Trade ($billions) 2019 Imports to US ($billions) 449 384
4. Two countries with which the US conducts a large amount of trade are China and Mexico. The table below provides real GDP and the distance between countries in miles as well as the actual imports by the US from these countries in 2019. Use the 2019 import numbers given as the actual amount of trade between the US and China and the US and Mexico. Use the version of the gravity model where GDPw represents B. Start with the following parameters: n=.50 and GDPw = $87,652 billion. a. Try some different values for n and estimate the expected amount of trade between the US and China, and the US and Mexico based on the Gravity model. What single value for n provides a good estimate of both trading relationships? How different to the n's have to be in order to get a precise estimate of trade (do not go beyond two decimals)? b. Based on your answers in a. what is n telling us? Try changing the distance I provided for Mexico from the US (there is no magic in the 100 mile number I chose). What happens to predicted US Mexico trade as the distance approaches zero? Think of n acting as a proxy for trade frictions. 2019 Real GDP Distance from US ($billions) (Miles) Country China Mexico United States Global GDP n US - China Trade Prediction US-China Trade Actual US - Mexico Trade Prediction US - Mexico Trade Actual 20,572 4,623 19,036 87,652 7,245 100 Trade ($billions) 2019 Imports to US ($billions) 449 384
Chapter1: Making Economics Decisions
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Transcribed Image Text:4. Two countries with which the US conducts a large amount of trade are China and
Mexico. The table below provides real GDP and the distance between countries in miles
as well as the actual imports by the US from these countries in 2019. Use the 2019
import numbers given as the actual amount of trade between the US and China and the
US and Mexico. Use the version of the gravity model where GDPw represents B. Start
with the following parameters: n=.50 and GDPw = $87,652 billion.
a. Try some different values for n and estimate the expected amount of trade
between the US and China, and the US and Mexico based on the Gravity model.
What single value for n provides a good estimate of both trading relationships?
How different to the n's have to be in order to get a precise estimate of trade (do
not go beyond two decimals)?
b. Based on your answers in a. what is n telling us? Try changing the distance I
provided for Mexico from the US (there is no magic in the 100 mile number I
chose). What happens to predicted US Mexico trade as the distance approaches
zero? Think of n acting as a proxy for trade frictions.
Distance from US
Country
(Miles)
China
Mexico
United States
Global GDP
n
US - China Trade
Prediction
US - China Trade
Actual
US - Mexico Trade
Prediction
US - Mexico Trade
Actual
2019 Real GDP
($billions)
20,572
4,623
19,036
87,652
7,245
100
Trade ($billions)
2019 Imports to US
($billions)
449
384
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