Hi I'm Managerial Economics major and currently studying international economics. Wondering if my equation is about correct without taxes and tariff being implemented.
I chose 3 countries US representing A, Germany representing C, and China representing B. This based on their current GDP from Trade Economics. The distance is based on the country's capital. Washington DC, Beijing and Berlin. We're using miles and dollars for currency. The GDP is in billions.
Gravity model equation. US as i and Germany as j.
In(29,184) +In (4066) – (distance) In (4161) miles away= 10,258. E10,258= $28,509 millions of dollars
Us as i and China as j.
In (29,184) + In(18,007) – In( 6,986)= 11,228
E11,228 = $75,207 million of dollars
Germany is i and China is j.
In(4066) +In(18007) -In(5530)= 9,491 E9,491=
$13,240 million of dollars.
Does this mean Us is likely to trade with China due to a bigger economy and offers a larger market to consume? Germany is likely to trade with US due to it's distance being closer to them compared to China.
Does the result represent only what in country i only or both i and j? I'm recently started this class so I'm likely to make mistakes and appreciate feedback thanks.
Is my gravity equation for international trade estimatley correct?
byu/Willstdusheide23 inAskEconomics
Posted by Willstdusheide23