Acta Oeconomica Pragensia 2013, 21(2):3-24 | DOI: 10.18267/j.aop.396

Gravity Model of International Trade, Its Variables, Assumptions, Problems and Applications

Petra Bubáková
Česká zemědělská univerzita v Praze, Provozně ekonomická fakulta (bubakova@pef.czu.cz).

The paper deals with the issues of gravity models applied in the field of trade flow analysis. Applied variables, assumptions of their impacts, problems of gravity equations and their resolving (namely the endogeneity problem, the heterogeneity problem, and the identification problem) are defined in this paper. The paper provides a detailed overview of selected gravity model publications in scientific papers with an impact factor since 2000. According to the document analysis, it is clear that panel data are the most commonly used type of data in the 21st century. Fixed effects models are recommended. The choice of variables depends on the subject being examined and on the aim of the analysis. Correct model specification and inclusion of relevant variables are highly important. The results were elaborated as part of the research project IGA 20121050 "Spatial regional market integration with agricultural raw materials".

Keywords: Gravity model, trade flows, assumption of variables, endogeneity problem, heterogeneity problem, identification problem, panel models
JEL classification: C10, F10, Q17

Published: April 1, 2013  Show citation

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Bubáková, P. (2013). Gravity Model of International Trade, Its Variables, Assumptions, Problems and Applications. Acta Oeconomica Pragensia, 21(2), 3-24. doi: 10.18267/j.aop.396
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