SpringerLink
Log in

Reinventing the Gravity Model: The Significance of Real-Time Data and Time-Related Factors in International Trade

  • Chapter
  • First Online:
Cooperation and Enlargement: Two Challenges to be Addressed in the European Projects—2022

Part of the book series: Studies in Systems, Decision and Control ((SSDC,volume 500))

  • 81 Accesses

Abstract

The gravity model serves as a multifaceted instrument with applicability across various empirical domains. In the realm of international macroeconomics, it is often employed to assess the implications of trade agreements, exchange rate fluctuations, currency unions, the ‘border effect,’ the utilization of shared or related languages, and a diverse array of more specialized applications. This paper presents a critical analysis of the evolution of gravity models in international trade by examining methodological advancements and empirical successes. Our primary focus lies in the underdeveloped concept of distance between two economies. The most straightforward and frequently employed approach to measuring distance involves the use of countries’ capital cities. However, given the rapid progress in data science and emerging technologies, our study integrates previously inaccessible digital information, such as the actual distances between two ports. This methodological enhancement allows for the (1) reconfiguration of the gravity model using real-time data as opposed to annual data, and (2) estimation that, contrary to popular belief, distance is not the most critical determinant; rather, it is time. Time delays in international trade correspond to a country distancing itself from its trading partners beyond what geographical factors dictate. By harnessing the power of data science and novel technologies, this research illuminates the potential to reinvent the gravity model and provide a more accurate understanding of the complex relationships between economies in the global trade landscape.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution

Subscribe and save

Springer+ Basic
EUR 32.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or Ebook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Chapter
EUR 29.95
Price includes VAT (France)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
EUR 160.49
Price includes VAT (France)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Hardcover Book
EUR 210.99
Price includes VAT (France)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free ship** worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Similar content being viewed by others

References

  1. Baier, S.L., Bergstrand, J.H.: Do free trade agreements actually increase members’ international trade? J. Int. Econ. 71(1), 72–95 (2007). https://doi.org/10.1016/j.**teco.2006.02.005

    Article  Google Scholar 

  2. Head, K., Mayer, T.: Chapter 3—Gravity equations: workhorse, toolkit, and cookbook. In: Gopinath, G., Helpman, E., Rogoff, K. (eds.) Handbook of International Economics, vol. 4, pp. 131–195. Elsevier (2014). https://doi.org/10.1016/B978-0-444-54314-1.00003-3

  3. Silva, J.M.C.S., Tenreyro, S.: The log of gravity. Rev. Econ. Stat. 88(4), 641–658 (2006). https://doi.org/10.1162/rest.88.4.641

    Article  Google Scholar 

  4. Tinbergen, J.: Sha** the World Economy: Suggestions for an International Economic Policy. The Twentieth Century Fund, New York, NY (1962)

    Google Scholar 

  5. Poyhonen, P.: A Tentative Model for the Volume of Trade Between Countries, vol. 90. Weltwirtschaftliches Archiv (1963)

    Google Scholar 

  6. Linnemann, H.: An Econometric Study of International Trade Flows. Holland Publishing, Amsterdam (1966)

    Google Scholar 

  7. Anderson, J.E., van Wincoop, E.: Gravity with gravitas: a solution to the border puzzle. Am. Econ. Rev. 93(1), 170–192 (2003). https://doi.org/10.1257/000282803321455214

    Article  Google Scholar 

  8. McCallum, J.: National borders matter: Canada-U.S. regional trade patterns. Am. Econ. Rev. 85(3), 615–623 (1995)

    Google Scholar 

  9. Anderson, J.E.: A theoretical foundation for the gravity equation. Am. Econ. Rev. 69(1), 106–116 (1979)

    MathSciNet  Google Scholar 

  10. Deardorff, A.: Testing trade theories and predicting trade flows. In: Handbook of International Economics. Elsevier. [Online]. https://econpapers.repec.org/bookchap/eeeintchp/1-10.htm (1984). Accessed 24 Apr. 2023

  11. Bergstrand, J.H.: The gravity equation in international trade: some microeconomic foundations and empirical evidence. Rev. Econ. Stat. 67(3), 474–481 (1985). https://doi.org/10.2307/1925976

    Article  Google Scholar 

  12. Bergstrand, J.H.: The generalized gravity equation, monopolistic competition, and the factor-proportions theory in international trade. Rev. Econ. Stat. 71(1), 143–153 (1989). https://doi.org/10.2307/1928061

    Article  MathSciNet  Google Scholar 

  13. Bergstrand, J.: The Heckscher-Ohlin-Samuelson model, the Linder hypothesis and the determinants of bilateral intra-industry trade. Econ. J. 100(403), 1216–1229 (1990)

    Article  Google Scholar 

  14. Helpman, E., Krugman, P.: Market Structure and Foreign Trade: Increasing Returns, Imperfect Competition, and the International Economy. MIT Press, Cambridge, MA (1985)

    Google Scholar 

  15. Trefler, D.: The case of the missing trade and other mysteries. Am. Econ. Rev. 85(5), 1029–1046 (1995)

    Google Scholar 

  16. Armington, P.S.: A theory of demand for products distinguished by place of production (Une théorie de la demande de produits différenciés d’après leur origine) (Una teoría de la demanda de productos distinguiéndolos según el lugar de producción). Staff Pap. Int. Monet. Fund 16(1), 159–178 (1969). https://doi.org/10.2307/3866403

    Article  Google Scholar 

  17. Leamer, E., Levinsohn, J.: International trade theory: the evidence. In: Handbook of International Economics. Elsevier. [Online]. https://econpapers.repec.org/bookchap/eeeintchp/3-26.htm (1995). Accessed 19 Apr. 2023

  18. Krugman, P., Cooper, R.N., Srinivasan, T.N.: Growing world trade: causes and consequences. Brook. Pap. Econ. Act. 1995(1), 327–377 (1995). https://doi.org/10.2307/2534577

    Article  Google Scholar 

  19. Eaton, J., Kortum, S.: Technology, geography, and trade. Econometrica 70(5), 1741–1779 (2002)

    Article  MATH  Google Scholar 

  20. Redding, S., Venables, A.J.: Economic geography and international inequality. J. Int. Econ. 62(1), 53–82 (2004). https://doi.org/10.1016/j.**teco.2003.07.001

    Article  Google Scholar 

  21. Chaney, T.: Distorted gravity: the intensive and extensive margins of international trade. Am. Econ. Rev. 98(4), 1707–1721 (2008). https://doi.org/10.1257/aer.98.4.1707

    Article  Google Scholar 

  22. Helpman, E., Melitz, M., Rubinstein, Y.: Estimating trade flows: trading partners and trading volumes*. Q. J. Econ. 123(2), 441–487 (2008). https://doi.org/10.1162/qjec.2008.123.2.441

    Article  MATH  Google Scholar 

  23. Melitz, M.J., Ottaviano, G.I.P.: Market size, trade, and productivity. Rev. Econ. Stud. 75(1), 295–316 (2008). https://doi.org/10.1111/j.1467-937X.2007.00463.x

    Article  MathSciNet  MATH  Google Scholar 

  24. Petroulas, P.: The effect of the euro on foreign direct investment. Eur. Econ. Rev. 51(6), 1468–1491 (2007)

    Article  Google Scholar 

  25. Warin, T., Wunnava, P.V., Janicki, H.P.: Testing Mundell’s Intuition of Endogenous OCA Theory*. Rev. Int. Econ. 17(1), 74–86 (2009). https://doi.org/10.1111/j.1467-9396.2008.00802.x

    Article  Google Scholar 

  26. Harrigan, J.: Openness to trade in manufactures in the OECD. J. Int. Econ. 40(1–2), 23–39 (1996)

    Article  Google Scholar 

  27. Baldwin, R., Taglioni, D.: Trade effects of the euro: a comparison of estimators. J. Econ. Integr. 22(4), 780–818 (2007)

    Article  Google Scholar 

  28. Kiviet, J.F.: On bias, inconsistency, and efficiency of various estimators in dynamic panel data models. J. Econ. 68(1), 53–78 (1995). https://doi.org/10.1016/0304-4076(94)01643-E

    Article  MathSciNet  MATH  Google Scholar 

  29. Romalis, J.: NAFTA’s and CUSFTA’s impact on international trade. Rev. Econ. Stat. 89(3), 416–435 (2007)

    Article  Google Scholar 

  30. Hallak, J.C.: Product quality and the direction of trade. J. Int. Econ. 68(1), 238–265 (2006). https://doi.org/10.1016/j.**teco.2005.04.001

    Article  Google Scholar 

  31. Rose, A.K., Lockwood, B., Quah, D.: One money, one market: the effect of common currencies on trade. Econ. Policy 15(30), 9–45 (2000)

    Article  Google Scholar 

  32. Mundell, R.: A plan for a European currency. In: The Economics of Common Currencies—Proceedings of the Madrid Conference on Optimum Currency Areas, Allen and Unwin, pp. 114–132 (1973)

    Google Scholar 

  33. Gómez-Herrera, E.: Comparing alternative methods to estimate gravity models of bilateral trade. Empir. Econ. 44(3), 1087–1111 (2013)

    Article  Google Scholar 

  34. Gourieroux, C., Monfort, A., Trognon, A.: Pseudo maximum likelihood methods: theory. Econometrica 52(3), 681–700 (1984). https://doi.org/10.2307/1913471

    Article  MathSciNet  MATH  Google Scholar 

  35. Bosquet, C., Boulhol, H.: Applying the GLM variance assumption to overcome the scale-dependence of the negative binomial QGPML estimator. Econ. Rev. 33(7), 772–784 (2014)

    Article  MathSciNet  MATH  Google Scholar 

  36. Westerlund, J., Wilhelmsson, F.: Estimating the gravity model without gravity using panel data. Appl. Econ. 43(6), 641–649 (2011). https://doi.org/10.1080/00036840802599784

    Article  Google Scholar 

  37. Martin, W., Pham, C.S.: Estimating the gravity model when zero trade flows are frequent and economically determined. Appl. Econ. 52(26), 2766–2779 (2020). https://doi.org/10.1080/00036846.2019.1687838

    Article  Google Scholar 

  38. Head, K., Mayer, T., Ries, J.: The erosion of colonial trade linkages after independence. J. Int. Econ. 81(1), 1–14 (2010). https://doi.org/10.1016/j.**teco.2010.01.002

    Article  Google Scholar 

  39. Felbermayr, G., Kohler, W., Felbermayr, G.J.: Exploring the intensive and extensive margins of world trade, CESifo, CESifo working paper series 1276. [Online]. https://econpapers.repec.org/paper/cesceswps/_5f1276.htm (2004). Accessed 19 Apr 2023

  40. Frankel, J., Stein, E., Wei, S.-J.: Trading blocs and the Americas: the natural, the unnatural, and the super-natural. J. Dev. Econ. 47(1), 61–95 (1995)

    Article  Google Scholar 

  41. Egger, P., Pfaffermayr, M.: The proper panel econometric specification of the gravity equation: a three-way model with bilateral interaction effects. Empir. Econ. 28(3), 571–580 (2003)

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. HEC Montréal, 3000, chemin de la Côte-Sainte-Catherine, Montréal, Québec, H3T 2A7, Canada

    Thierry Warin

  2. Ss. Cyril and Methodius University in Skopje, Blvd. Goce Delcev 9b, 1000, Skopje, North Macedonia

    Aleksandar Stojkov

Authors
  1. Thierry Warin
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Aleksandar Stojkov
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Aleksandar Stojkov .

Editor information

Editors and Affiliations

  1. Université Grenoble, Alpes, France

    Ghislaine Pellat

  2. Saints Cyril and Methodius University, Skopje, North Macedonia

    Jovan Zafiroski

  3. Comenius University, Bystrica, Slovakia

    Marian Šuplata

Rights and permissions

Reprints and permissions

Copyright information

© 2024 The Author(s), under exclusive license to Springer Nature Switzerland AG

About this chapter

Check for updates. Verify currency and authenticity via CrossMark

Cite this chapter

Warin, T., Stojkov, A. (2024). Reinventing the Gravity Model: The Significance of Real-Time Data and Time-Related Factors in International Trade. In: Pellat, G., Zafiroski, J., Šuplata, M. (eds) Cooperation and Enlargement: Two Challenges to be Addressed in the European Projects—2022. Studies in Systems, Decision and Control, vol 500. Springer, Cham. https://doi.org/10.1007/978-3-031-42253-9_6

Download citation

  • DOI: https://doi.org/10.1007/978-3-031-42253-9_6

  • Published:

  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-031-42252-2

  • Online ISBN: 978-3-031-42253-9

  • eBook Packages: EngineeringEngineering (R0)

Publish with us

Policies and ethics

Search

Navigation