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Determining Bilateral Trade Patterns Using A Dynamic Gravity Equation

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  • Kim, MinKyoung
  • Cho, Guedae
  • Koo, Won W.

Abstract

Using 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.

Suggested Citation

  • Kim, MinKyoung & Cho, Guedae & Koo, Won W., 2003. "Determining Bilateral Trade Patterns Using A Dynamic Gravity Equation," Agribusiness & Applied Economics Report 23538, North Dakota State University, Department of Agribusiness and Applied Economics.
    • Handle: RePEc:ags:nddaae:23538
    DOI: 10.22004/ag.econ.23538
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    Cited by:

    1. Bhattacharyya Ranajoy & Banerjee, Tathagata, 2006. "Does the Gravity Model Explain India Direction of Trade? A Panel Data Approach," IIMA Working Papers WP2006-09-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    2. Douglas L. Campbell, 2010. "History, Culture, and Trade: A Dynamic Gravity Approach," EERI Research Paper Series EERI_RP_2010_26, Economics and Econometrics Research Institute (EERI), Brussels.
    3. Felicitas Nowak-Lehmann D. & Dierk Herzer & Sebastian Vollmer & Inmaculada Martinez-Zarzoso, 2009. "Modelling the dynamics of market shares in a pooled data setting: econometric and empirical issues," Applied Economics, Taylor & Francis Journals, vol. 43(7), pages 823-835.
    4. Narayan, Seema & Nguyen, Tri Tung, 2016. "Does the trade gravity model depend on trading partners? Some evidence from Vietnam and her 54 trading partners," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 220-237.
    5. Dierk Herzer & Felicitas Nowak-Lehmann D. & Inmaculada Martínez-Zarzoso & Sebastian Vollmer, "undated". "On Distributed Lags in Dynamic Panel Data Models: Evidence from Market Shares," Working Papers on International Economics and Finance 06-05, FEDEA.
    6. Karemera, David & Guah, Mathew & Smalls, Gerald & Whitesides, Louis, 2023. "A Re-Examination of the Benefits of Trade Agreements on Agricultural Exports and the Impact of the 2008 Great Recession," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 11(3), July.
    7. Felicitas Nowak-Lehmann D. & Dierk Herzer & Sebastian Vollmer & Inmaculada Martínez-Zarzoso, 2006. "Problems in Applying Dynamic Panel Data Models: Theoretical and Empirical Findings," Ibero America Institute for Econ. Research (IAI) Discussion Papers 140, Ibero-America Institute for Economic Research.

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    Keywords

    International Relations/Trade;

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