The Gravity Equation in International Trade: An Explanation by T. Chaney
Paper of the Week 6
<<“The Gravity Equation in International Trade: An Explanation” by T. Chaney offers an interesting explanation based on networks theory for an empirical finding in international trade. More considerations on the networks theory applied to international trade on the paper “The Network Structure of International Trade” by the same author. The gravity equation in international trade states that the bilateral trade between two countries is proportional to their respective sizes and inversely proportional to the geographic distance between them. The paper tackles not only the straightforward GDP related side but also provide an argument for the elasticity to distance. The author argues based on networks of contacts, providing an explanation which can handle also “the critique that the impact of distance on trade ought to change with changes in the technology for trading goods, in the types of goods traded, in the political barriers to trade, in the set of countries involved in trade”.
In the case of Romania, with the change of generations, there is a need for a transfer of contacts mainly with the trade markets which were not in vogue post ’89. >> Lucian Isar
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