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Determining Bilateral Trade Patterns Using A Dynamic Gravity Equation


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


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.

Suggested Citation

  • Kim, MinKyoung & Cho, Guedae & Koo, Won W., 2003. "Determining Bilateral Trade Patterns Using A Dynamic Gravity Equation," Agribusiness & Applied Economics Report 23538, North Dakota State University, Department of Agribusiness and Applied Economics.
  • Handle: RePEc:ags:nddaae:23538

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    References listed on IDEAS

    1. Munisamy Gopinath & Daniel Pick & Utpal Vasavada, 1999. "The Economics of Foreign Direct Investment and Trade with an Application to the U.S. Food Processing Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(2), pages 442-452.
    2. Mattson, Jeremy W. & Koo, Won W., 2002. "U.S. Agricultural Trade With Western Hemisphere Countries And The Effect Of The Free Trade Area Of The Americas," Agribusiness & Applied Economics Report 23525, North Dakota State University, Department of Agribusiness and Applied Economics.
    3. Yulin Ning & Michael R. Reed, 1995. "Locational determinants of the US direct foreign investment in food and kindred products," Agribusiness, John Wiley & Sons, Ltd., vol. 11(1), pages 77-85.
    4. Somwaru, Agapi & Bolling, H. Christine, 1999. "U.S. Foreign Direct Investment And Trade: Substitutes Or Complements? The Case Of The Food Processing Industry," 1999 Annual meeting, August 8-11, Nashville, TN 21715, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Ravichandran Munirathinam & Mary Marchant & Michael Reed, 1997. "The Canada U.S. free trade agreement: Competitive tradeoffs between foreign direct investment and trade," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 3(3), pages 312-324, August.
    6. Koo, Won W. & Mattson, Jeremy W., 2002. "Processed Food Trade And Foreign Direct Investment Under Nafta," Agribusiness & Applied Economics Report 23566, North Dakota State University, Department of Agribusiness and Applied Economics.
    7. repec:kap:iaecre:v:3:y:1997:i:3:p:312-324 is not listed on IDEAS
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    Cited by:

    1. Bhattacharyya Ranajoy & Banerjee, Tathagata, 2006. "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.
    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. Douglas L. Campbell, 2010. "History, Culture, and Trade: A Dynamic Gravity Approach," EERI Research Paper Series EERI_RP_2010_26, Economics and Econometrics Research Institute (EERI), Brussels.
    4. Narayan, Seema & Nguyen, Tri Tung, 2016. "Does the trade gravity model depend on trading partners? Some evidence from Vietnam and her 54 trading partners," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 220-237.


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