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Application of gravity models with a fixed component in the international trade flows of coal, iron ore and crude oil

Author

Listed:
  • Sahar Babri

    () (Department of Business and Management Science, Norwegian School of Economics)

  • Kurt Jørnsten

    () (Department of Business and Management Science, Norwegian School of Economics)

  • Michael Viertel

    () (Market Analyst at Vattenfall)

Abstract

Abstract As freight transport flows grow continuously, developing better quantitative models for forecasting future trade flows becomes more important. Trade flows can be estimated by discrete choice theory, leading to gravity models formulations. At a given point in time, trade flows may also be affected by long-term contracts or simply trading habits. This leads to situations where only a fraction of the market is subject to choice. In this article, we extend the traditional gravity model such that a fixed amount is separated from observed trade flows and only residuals are subject to discrete choice. We apply our model on coal, iron ore and oil seaborne trade flows and demonstrate that the proposed construction results in a significantly better fit for the observed data. This observation is important in predicting future trade volumes.

Suggested Citation

  • Sahar Babri & Kurt Jørnsten & Michael Viertel, 2017. "Application of gravity models with a fixed component in the international trade flows of coal, iron ore and crude oil," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 19(2), pages 334-351, June.
  • Handle: RePEc:pal:marecl:v:19:y:2017:i:2:d:10.1057_mel.2015.27
    DOI: 10.1057/mel.2015.27
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    References listed on IDEAS

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    1. Jan Ubøe & Jonas Andersson & Kurt Jörnsten & Siri Pettersen Strandenes, 2009. "Modeling freight markets for coal," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 11(3), pages 289-301, September.
    2. Daniel C. Knudsen & A. Stewart Fotheringham, 1986. "Matrix Comparison, Goodness-of-Fit, and Spatial Interaction Modeling," International Regional Science Review, , vol. 10(2), pages 127-147, August.
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    1. repec:spr:minecn:v:31:y:2018:i:1:d:10.1007_s13563-017-0125-8 is not listed on IDEAS

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