DETERMINING BILATERAL TRADE PATTERNS USING A DYNAMIC GRAVITY EQUATION

MinKyoung Kim, Guedae Cho and Won W. Koo

No 23538, Agribusiness & Applied Economics Report from North Dakota State University, Department of Agribusiness and Applied Economics

Abstract: Using a dynamic gravity equation, we show that the national product differentiation model explains food and agricultural trade more properly, while the product differentiation model is more appropriate to explain large-scale manufacturing trade. In this context, our result is not consistent with the one found by Head and Ries (2001) in the short-run. The intuitive explanation for this result is that inward foreign direct investment can occur through either merger or acquisition in the short-run. Second, the pattern of bilateral trade could quickly adjust to changes in relative income between countries. Furthermore, we illustrate the positive impacts of world income growth on bilateral trade, which is in sharp contrast with the conventional analysis. This reveals yet another way to test the pattern of bilateral trade.

Keywords: International; Relations/Trade (search for similar items in EconPapers)
Pages: 16
Date: 2003
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:nddaae:23538

DOI: 10.22004/ag.econ.23538

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