The new version of gravity model in explaining bilateral trade. “A comparative study for developed and developing nations”
World trade has grown rapidly. Several factors are highlighted by literature as the driving forces behind the growth of world trade. Reductions in barriers to trade are one of them. A comprehensive empirical investigation is carried to ascertain the trade reducing and increasing effect of barriers to trade and facilitators to trade. The new version of gravity model is developed in the connections in this study while analyzing the effect of GDP, distance, remittances, FDI, transportation cost, exchange rate, inflation, population, import and export of specifically trading partners on trade flows during bilateral trade. The study revealed that the developed version of gravity model explains the trade flows substantially and vigorously for the nations from developed world than for the nations from developing world.
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