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Gravity Model and Zipf's Law: An In-Depth Study into the Nature of International Trade

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  • Mislav Josic
  • Marija Nikic

Abstract

In this paper trade pattern based on distances between countries was tested through gravity model approach. This research highlights some of the regularities in international trade that arise and are in concordance with the rank-size rule. An empirical study was conducted on static data used in Croatia in 2012 in order to test the validity of Zipf's law. The presence of Zipf's law was empirically tested using population data for city proper and city settlements as well as the export values of Croatia's most important trading partners. In both cases results corroborate the existence of Zipf's law in population and export values. Due to the heavy tailness of Pareto distribution minor adjustments to the model have been made. Gravity model approach shows significant impact of distance and GDP on international trade. Dummy variable common border indicates that most of the trade in Croatia is done due to preferable geographical position of the country.

Suggested Citation

  • Mislav Josic & Marija Nikic, 2013. "Gravity Model and Zipf's Law: An In-Depth Study into the Nature of International Trade," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 2, October.
    • Handle: RePEc:bjz:ajisjr:494
    DOI: 10.5901/ajis.2013.v2n9p583
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    References listed on IDEAS

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    1. Ioannides, Yannis M. & Overman, Henry G., 2003. "Zipf's law for cities: an empirical examination," Regional Science and Urban Economics, Elsevier, vol. 33(2), pages 127-137, March.
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