The Gravity Model Of Trade Applied To Africa

Abstract

The gravity model states that trade between any two countries is proportional, other things equal, to the product of the two countries’ GDPs, and diminishes with the distance between the two countries. The logic is that larger economies tend to spend large amounts on imports and attract large share of other countries spending (exports) because they produce large quantity and variety of goods and services. Distance, on the other hand, tends to lessen trade between countries because of transportation costs and other intangible barriers, such as language, geography, and historic colonial relationships. The following specific hypotheses from the gravity model of trade are tested with respect to African countries alone: The amount of exports by one African country to another is inversely related to the distance between the two countries, The amount of exports by one African country to another reflects the GDP of the country to whom the exports are sent, The amount of exports directly reflects a country’s own GDP, and Countries associated with the same colonial power experience greater trade. Each of these hypotheses is tested with logarithmic forms of the variables in the hypotheses. While the resulting logarithmic model works is statistically significant and bears the correct signs, it does not show colonial patterns to be a strong as those found in other studies that are focused on inter-continental trade relationships. The significance of colonization in other studies may be a surrogate for the degree of development of nations. Since trade grows less than proportionately both with respect to the GDP of the importing nation and with respect to the GDP of the exporter, this study shows a disappointing trade impact of growth in the developing world on the potential development of Africa through export growth.

Türkiye ile Asya ve Pasifik Ekonomik İşbirliği (APEC) Ülkeleri Arasındaki Dış Ticaretin Çekim Modeli ile İncelenmesi

“…He has concluded that national income, population, language and other factors have positive effects on the export flow of countries, while the distance between countries affects foreign trade negatively. Tansey and Hanson (2011) have examined the trade of developing countries with the help of the gravity model. According to the gravity model they applied to the Asian, Latin American and African regions, it has been concluded that trade of countries in these regions with the developing neighboring countries has positive effects on the volume of foreign trade rather than establishing commercial relations with the developed countries in the remote regions.…”

Determinants of Africa - BRIC Countries Bilateral Trade Flows

“…The standard gravity model predicts that bilateral trade between any two countries is negatively related to the distance between the two trading countries. While it has been argued that the distance variable works in favour of economies that are in the same continent or region (Tansey and Touray, 2010) there has also been a considerable discussions about the death of distance due to technological advancement (Kolko, 2000;Cairncross, 2001;Capling and Nossal, 2001).…”

“…For most of the studies developing countries have been considered as a dummy variable with an argument that, including developing and developed countries in the same sample for regression analysis results into biased results hence a heterogeneity problem (Fontagné and Freudenberg, 2002). It is also argued that the economic difference between these economies being so huge make income likely to be a substitute for differences in degree of development instead of the ability of income growth to stimulate trade (Tansey and Touray, 2010). Nevertheless, the literature also asserts that differences in economic size among countries will encourage more trade (Islam et al, 2014) this contention is worthy examining by having a sample that contain economies that differs in size.…”

Ukraine’s Trade Under the Dcfta: A Gravity Model

“…Fixed effect gravity models use dummies to assess trade impact of specific trade policies on trade, most commonly the impact of FTAs [23]. These fixed effect models also have the benefit of overcoming heteroskedasticity inherent in gravity models whereby the structural form is affected by policies such as signing an agreement or change in exchange rate regime.…”

“…Results. As recommended by Baldwin et al [23] the parameters were estimated using pooled panel data of Accession Countries' exports to the EU by log linear OLS regression.…”