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Stochastic varying coefficients gravity model: An application in trade analysis

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Abstract

In international trade analysis between countries, the central theme is the examination of whether or not there are any significant diff erences between the actual trade and potential trade, given the determinants of trade flows. Thus, estimating the potential trade is an important component in trade analysis. The objective of this paper is to suggest a methodology to estimate the potential trade flows between countries, using the gravity model, which has been established in the literature as the most successful empirical trade flow equation, usually producing a good fit. The application of the method has been demonstrated using trade flows between Australia and its trading partners in the Indian Ocean Rim.

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  • K. Kalirajan, 1999. "Stochastic varying coefficients gravity model: An application in trade analysis," Journal of Applied Statistics, Taylor & Francis Journals, vol. 26(2), pages 185-193.
    • Handle: RePEc:taf:japsta:v:26:y:1999:i:2:p:185-193
    DOI: 10.1080/02664769922520
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    1. Drysdale, Peter & Garnaut, Ross, 1982. "Trade Intensities and the Analysis of Bilateral Trade Flows in a Many-Country World : A Survey," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 22(2), pages 62-84, February.
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    5. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
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