Question 1: World Trade Overview and Gravity Model In the 19th Century Britain was trading with countries from distant locations such as North America, Latin America, Africa and Asia. Today, Britain mostly trades with European countries. Examine the causes of the British changing trade pattern with reference to the Gravity Model.
Question 1: World Trade Overview and Gravity Model
In the 19th Century Britain was trading with countries from distant locations such as
North America, Latin America, Africa and Asia. Today, Britain mostly trades with
European countries. Examine the causes of the British changing trade pattern with
reference to the Gravity Model.
Gravity model explains, bilateral trade between countries is depends upon the size of the economy or size of the GDP of the economy and distance between the trading partners. The gravity model equation is given below.
Where, Fij is indicating trade between country i and j. G is the gravitational constant. Mi and Mj are indicating the size of market or economy i and j. Dij indicating the distance between the trading country i and j.
This equation explains that, the flow of trade between countries will increase with an increase in market size and decrease in distance.
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