IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2308.06303.html

A New Approach to Overcoming Zero Trade in Gravity Models to Avoid Indefinite Values in Linear Logarithmic Equations and Parameter Verification Using Machine Learning

Author

Listed:
  • Mikrajuddin Abdullah

Abstract

The presence of a high number of zero flow trades continues to provide a challenge in identifying gravity parameters to explain international trade using the gravity model. Linear regression with a logarithmic linear equation encounters an indefinite value on the logarithmic trade. Although several approaches to solving this problem have been proposed, the majority of them are no longer based on linear regression, making the process of finding solutions more complex. In this work, we suggest a two-step technique for determining the gravity parameters: first, perform linear regression locally to establish a dummy value to substitute trade flow zero, and then estimating the gravity parameters. Iterative techniques are used to determine the optimum parameters. Machine learning is used to test the estimated parameters by analyzing their position in the cluster. We calculated international trade figures for 2004, 2009, 2014, and 2019. We just examine the classic gravity equation and discover that the powers of GDP and distance are in the same cluster and are both worth roughly one. The strategy presented here can be used to solve other problems involving log-linear regression.

Suggested Citation

  • Mikrajuddin Abdullah, 2023. "A New Approach to Overcoming Zero Trade in Gravity Models to Avoid Indefinite Values in Linear Logarithmic Equations and Parameter Verification Using Machine Learning," Papers 2308.06303, arXiv.org.
    • Handle: RePEc:arx:papers:2308.06303
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2308.06303
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Tiiu Paas, 2000. "The gravity approach for modeling international trade patterns for economies in transition," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 6(4), pages 633-648, November.
    2. J. M. C. Santos Silva & Silvana Tenreyro, 2022. "The Log of Gravity at 15," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 21(3), pages 423-437, September.
    3. William Martin & Cong S. Pham, 2020. "Estimating the gravity model when zero trade flows are frequent and economically determined," Applied Economics, Taylor & Francis Journals, vol. 52(26), pages 2766-2779, May.
    4. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-481, August.
    5. Peter Nijkamp & Waldemar Ratajczak, 2021. "Gravitational Analysis in Regional Science and Spatial Economics: A Vector Gradient Approach to Trade," International Regional Science Review, , vol. 44(3-4), pages 400-431, May.
    6. Thomas Chaney, 2018. "The Gravity Equation in International Trade: An Explanation," Journal of Political Economy, University of Chicago Press, vol. 126(1), pages 150-177.
    7. repec:spo:wpmain:info:hdl:2441/3pucspchqi8kcpk743av62v2va is not listed on IDEAS
    8. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    9. Jean-Marc Falter & Christophe Perignon, 2000. "Demand for football and intramatch winning probability: an essay on the glorious uncertainty of sports," Applied Economics, Taylor & Francis Journals, vol. 32(13), pages 1757-1765.
    10. repec:spo:wpmain:info:hdl:2441/6k7m0q7h709rdrhbpm2n96irf8 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mikrajuddin Abdullah, 2023. "Theoretical foundation for the Pareto distribution of international trade strength and introduction of an equation for international trade forecasting," Papers 2309.00635, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mikrajuddin Abdullah, 2023. "Theoretical foundation for the Pareto distribution of international trade strength and introduction of an equation for international trade forecasting," Papers 2309.00635, arXiv.org.
    2. Martin, Will, 2020. "Making Gravity Great Again," 2020: Economic Implications of COVID-19, December 14-15, Virtual Platform 339376, International Agricultural Trade Research Consortium.
    3. Jacqueline Karlsson & Helena Melin & Kevin Cullinane, 2018. "The impact of potential Brexit scenarios on German car exports to the UK: an application of the gravity model," Journal of Shipping and Trade, Springer, vol. 3(1), pages 1-22, December.
    4. David Santiago Caraballo Candela, 2025. "Impact Assessment of the Colombia-Korea FTA: An Empirical Approach," Documentos CEDE 21296, Universidad de los Andes, Facultad de Economía, CEDE.
    5. Shumilov, Andrei, 2017. "Оценивание Гравитационных Моделей Международной Торговли: Обзор Основных Подходов [Estimating gravity models of international trade: a survey of methods]," MPRA Paper 79790, University Library of Munich, Germany.
    6. Anne Michèle Tenlep, "undated". "Weight Of Oil Rent On Labor Mobility And Demand Of Cameroonian Food Products In Cemac Zone: An Application Of A Gravity Model," Review of Socio - Economic Perspectives 202055, Reviewsep.
    7. Song, Danbee & Sam, Abdoul G., "undated". "Voluntary Environmental Program and Export Performance," 2018 Annual Meeting, August 5-7, Washington, D.C. 274425, Agricultural and Applied Economics Association.
    8. Michele Fratianni & Francesco Marchionne, 2011. "The Limits to Integration," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume I, chapter 9, Edward Elgar Publishing.
    9. Hildegunn K. Nordås & Dorothée Rouzet, 2017. "The Impact of Services Trade Restrictiveness on Trade Flows," The World Economy, Wiley Blackwell, vol. 40(6), pages 1155-1183, June.
    10. Marco Dueñas & Giorgio Fagiolo, 2013. "Modeling the International-Trade Network: a gravity approach," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 8(1), pages 155-178, April.
    11. Maria Cipollina & Luca De Benedictis & Luca Salvatici & Claudio Vicarelli, 2016. "Policy Measurement And Multilateral Resistance In Gravity Models," Working Papers LuissLab 16130, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    12. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    13. Felipa de Mello-Sampayo, 2017. "Competing-destinations gravity model applied to trade in intermediate goods," Applied Economics Letters, Taylor & Francis Journals, vol. 24(19), pages 1378-1384, November.
    14. Paas, Tiiu, 2002. "Gravity Approach for Exploring Baltic Sea Regional Integration in the Field of International Trade," Discussion Paper Series 26379, Hamburg Institute of International Economics.
    15. Cipollina, Maria & Salvatici, Luca, 2007. "EU and developing countries: an analysis of preferential margins on agricultural trade flows," Working Papers 7219, TRADEAG - Agricultural Trade Agreements.
    16. Valeria Costantini & Francesco Crespi, 2015. "European enlargement policy, technological capabilities and sectoral export dynamics," The Journal of Technology Transfer, Springer, vol. 40(1), pages 25-69, February.
    17. Brueckner, Markus & Van Long, Ngo & Vespignani, Joaquin, 2020. "Non-gravity trade," Working Papers 2020-04, University of Tasmania, Tasmanian School of Business and Economics.
    18. Claudio Candia Campano & Medardo Aguirre Gonz�lez & Lilliam Ant�n L�pez & Javier Beltr�n Valdebenito, 2018. "A gravity model of trade for Nicaraguan agricultural exports," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, vol. 37(74), pages 391-428.
    19. Wessel, Jan, 2019. "Evaluating the transport-mode-specific trade effects of different transport infrastructure types," Transport Policy, Elsevier, vol. 78(C), pages 42-57.
    20. Clougherty, Joseph A. & Grajek, Michał, 2014. "International standards and international trade: Empirical evidence from ISO 9000 diffusion," International Journal of Industrial Organization, Elsevier, vol. 36(C), pages 70-82.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2308.06303. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.