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Question 1

Gravity model

Answer 1

The size of an economy is directly linked to the volume of imports and exports.
Assumes that the value of trade between 2 countries is proportional to the product of the 2 countries’ GDP and diminishes with the distance between the 2 countries

Tij = A x Yi x Yj /Dij
where:
Tij is the value of trade between country i and country j
A is a constant
Yi the GDP of country i, Yj is the GDP of country j
Dij is the distance between country i and country j

Question 2

Things that matter for trade

Answer 2

• Size and distance
  1. Cultural affinity
  2. Geography
  3. Multinational corporations
  4. Trade agreements
  5. Borders
  shared 4 & 5 are trade facilitators