Application of gravity models with a fixed component in the international trade flows of coal, iron ore and crude oil

Sahar Babri (), Kurt Jörnsten and Michael Viertel ()
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Sahar Babri: Department of Business and Management Science, Norwegian School of Economics
Michael Viertel: Market Analyst at Vattenfall

Maritime Economics & Logistics, 2017, vol. 19, issue 2, No 8, 334-351

Abstract: Abstract As freight transport flows grow continuously, developing better quantitative models for forecasting future trade flows becomes more important. Trade flows can be estimated by discrete choice theory, leading to gravity models formulations. At a given point in time, trade flows may also be affected by long-term contracts or simply trading habits. This leads to situations where only a fraction of the market is subject to choice. In this article, we extend the traditional gravity model such that a fixed amount is separated from observed trade flows and only residuals are subject to discrete choice. We apply our model on coal, iron ore and oil seaborne trade flows and demonstrate that the proposed construction results in a significantly better fit for the observed data. This observation is important in predicting future trade volumes.

Keywords: gravity model; trade flow modeling; coal seaborne trade flows; iron ore seaborne trade flows; oil seaborne trade flows (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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DOI: 10.1057/mel.2015.27

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