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Determining Bilateral Trade Patterns Using A Dynamic Gravity Equation

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

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    Bibliographic Info

    Paper provided by North Dakota State University, Department of Agribusiness and Applied Economics in its series Agribusiness & Applied Economics Report with number 23538.

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    Date of creation: 2003
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    Handle: RePEc:ags:nddaae:23538

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    Related research

    Keywords: dynamic gravity equation; national product differentiation; product differentiation; world income growth; International Relations/Trade;

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    Cited by:
    1. Campbell, Douglas L., 2010. "History, culture, and trade: a dynamic gravity approach," MPRA Paper 24014, University Library of Munich, Germany.
    2. 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.
    3. Bhattacharyya Ranajoy & Banerjee, Tathagata, . "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.

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