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An International Trade Flow Model with Substitution: An Extension of the Gravity Model

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  • Bikker, Jacob A

Abstract

The traditional gravity model has often been applied to international trade flows, especially to analyze trade creation and trade diversion. However, there are two fundamental objections to the model: it cannot describe substitutions between flows, and it lacks a cogent theoretical foundation. A newly developed model, the extended gravity model (EGM), overcomes these objections. An empirical test strongly rejects the gravity model in favor of the EGM. The empirical analysis also proves that the gravity model widely overestimates the influence of the determinants of international trade. The EGM encompasses several models originating in regional economics, and can be applied usefully to a variety of subjects. Copyright 1987 by WWZ and Helbing & Lichtenhahn Verlag AG

Suggested Citation

  • Bikker, Jacob A, 1987. "An International Trade Flow Model with Substitution: An Extension of the Gravity Model," Kyklos, Wiley Blackwell, vol. 40(3), pages 315-337.
  • Handle: RePEc:bla:kyklos:v:40:y:1987:i:3:p:315-37
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    Cited by:

    1. Michele Fratianni & Chang Hoon Oh, 2009. "Expanding RTAs, trade flows, and the multinational enterprise," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(7), pages 1206-1227, September.
    2. Joras Ferwerda & Mark Kattenberg & Han-Hsin Chang & Brigitte Unger & Loek Groot & Jacob A. Bikker, 2013. "Gravity models of trade-based money laundering," Applied Economics, Taylor & Francis Journals, vol. 45(22), pages 3170-3182, August.
    3. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 49-63.
    4. Fock, Achim & von Ledebur, Oliver, 1998. "Struktur und Potentiale des Agraraußenhandels Mittel- und Osteuropas," IAMO Discussion Papers 14, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
    5. repec:wfo:wstudy:19262 is not listed on IDEAS
    6. Guo, Rongxing, 2004. "How culture influences foreign trade: evidence from the U.S. and China," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 33(6), pages 785-812, December.
    7. Gavin Murphy & Iulia Siedschlaga, 2011. "Has the Euro Boosted Intra-Euro Area Exports? Evidence from Industry Data," Review of Economics and Institutions, Università di Perugia, vol. 2(3).
    8. Juliette Milgram, 2003. "Quantitative Restrictions on Clothing Imports: Impact and Determinants of the Common Trade Policy Towards Developing Countries," Economic Working Papers at Centro de Estudios Andaluces E2003/04, Centro de Estudios Andaluces.
    9. Jacob J. de Vries & Peter Nijkamp & Piet Rietveld, 2000. "Alonso's General Theory of Movement: Advances in Spatial Interaction Modeling," Tinbergen Institute Discussion Papers 00-062/3, Tinbergen Institute.
    10. FAÍÑA J.Andrés & LÓPEZ-RODRÍGUEZ Jesus, "undated". "Population Potentials and Development Levels: Empirical Findings in the European Union," EcoMod2003 330700050, EcoMod.
    11. Bos J.W.B. & Laar M. van de, 2004. "Explaining Foreign Direct Investment in Central and Eastern Europe: an Extended Gravitiy Approach," Research Memorandum 041, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    12. Michael Smith, 2001. "What have the FTA and the NAFTA done to the Canadian labor market?," Forum for Social Economics, Springer;The Association for Social Economics, vol. 30(2), pages 25-50, March.
    13. J.A. Bikker, 2009. "An extended gravity model with substitution applied to international trade," Working Papers 09-17, Utrecht School of Economics.
    14. Laszlo Balazsi & Felix Chan & Laszlo Matyas, 2018. "Even Count Estimation," CEU Working Papers 2018_2, Department of Economics, Central European University.
    15. Piazolo, Daniel, 1996. "Trade integration between Eastern and Western Europe: Politics follows the market," Kiel Working Papers 745, Kiel Institute for the World Economy (IfW).
    16. Lionel Fontagné & Nicolas Péridy, 1995. "Uruguay Round et PVD : le cas de l'Afrique du Nord," Revue Économique, Programme National Persée, vol. 46(3), pages 703-715.
    17. repec:rfe:zbefri:v:35:y:2017:i:1:p:199-215 is not listed on IDEAS
    18. Merkies, A.H.Q.M. & Meer, T. van der, 1988. "Theoretical foundations for the 3-c model," Serie Research Memoranda 0002, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    19. Lionel Fontagné & Michaël Pajot & Jean-Michel Pasteels, 2002. "Potentiels de commerce entre économies hétérogènes : un petit mode d'emploi des modèles de gravité," Economie & Prévision, La Documentation Française, vol. 0(1), pages 115-139.
    20. G.J.M. Linders, 2006. "Estimation of the Gravity Equation of Bilateral Trade in the Presence of Zero Flows," ERSA conference papers ersa06p746, European Regional Science Association.
    21. Vos, A.F. & Vries, J.J., 1990. "The likelihood function of a generalized gravity model : handling the implicit singularity of a nonlinear transformation," Serie Research Memoranda 0023, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    22. Josheski, Dushko & Fotov, Risto, 2013. "Gravity Modeling: International Trade and Innovations," EconStor Preprints 71060, ZBW - German National Library of Economics.
    23. Enrique Martínez-Galán & Maria-Paula Fontoura & Isabel Proença, 2005. "Trade Potential In An Enlarged European Union: A Recent Approach," International Trade 0508011, EconWPA.
    24. David M. Gould, 1998. "Has NAFTA changed North American trade?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q 1, pages 12-23.

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