Determining Bilateral Trade Patterns Using A Dynamic Gravity Equation
AbstractUsing a dynamic gravity equation, we show that the national product differentiation model explains food and agricultural trade more properly, while the product differentiation model is more appropriate to explain large-scale manufacturing trade. In this context, our result is not consistent with the one found by Head and Ries (2001) in the short-run. The intuitive explanation for this result is that inward foreign direct investment can occur through either merger or acquisition in the short-run. Second, the pattern of bilateral trade could quickly adjust to changes in relative income between countries. Furthermore, we illustrate the positive impacts of world income growth on bilateral trade, which is in sharp contrast with the conventional analysis. This reveals yet another way to test the pattern of bilateral trade.
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Bibliographic InfoPaper provided by North Dakota State University, Department of Agribusiness and Applied Economics in its series Agribusiness & Applied Economics Report with number 23538.
Date of creation: 2003
Date of revision:
dynamic gravity equation; national product differentiation; product differentiation; world income growth; International Relations/Trade;
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