IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2308.06303.html
   My bibliography  Save this paper

A New Approach to Overcoming Zero Trade in Gravity Models to Avoid Indefinite Values in Linear Logarithmic Equations and Parameter Verification Using Machine Learning

Author

Listed:
  • Mikrajuddin Abdullah

Abstract

The presence of a high number of zero flow trades continues to provide a challenge in identifying gravity parameters to explain international trade using the gravity model. Linear regression with a logarithmic linear equation encounters an indefinite value on the logarithmic trade. Although several approaches to solving this problem have been proposed, the majority of them are no longer based on linear regression, making the process of finding solutions more complex. In this work, we suggest a two-step technique for determining the gravity parameters: first, perform linear regression locally to establish a dummy value to substitute trade flow zero, and then estimating the gravity parameters. Iterative techniques are used to determine the optimum parameters. Machine learning is used to test the estimated parameters by analyzing their position in the cluster. We calculated international trade figures for 2004, 2009, 2014, and 2019. We just examine the classic gravity equation and discover that the powers of GDP and distance are in the same cluster and are both worth roughly one. The strategy presented here can be used to solve other problems involving log-linear regression.

Suggested Citation

  • Mikrajuddin Abdullah, 2023. "A New Approach to Overcoming Zero Trade in Gravity Models to Avoid Indefinite Values in Linear Logarithmic Equations and Parameter Verification Using Machine Learning," Papers 2308.06303, arXiv.org.
    • Handle: RePEc:arx:papers:2308.06303
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2308.06303
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Thomas Chaney, 2018. "The Gravity Equation in International Trade: An Explanation," Journal of Political Economy, University of Chicago Press, vol. 126(1), pages 150-177.
    2. Peter Nijkamp & Waldemar Ratajczak, 2021. "Gravitational Analysis in Regional Science and Spatial Economics: A Vector Gradient Approach to Trade," International Regional Science Review, , vol. 44(3-4), pages 400-431, May.
    3. Tiiu Paas, 2000. "The gravity approach for modeling international trade patterns for economies in transition," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 6(4), pages 633-648, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mikrajuddin Abdullah, 2023. "Theoretical foundation for the Pareto distribution of international trade strength and introduction of an equation for international trade forecasting," Papers 2309.00635, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mikrajuddin Abdullah, 2023. "Theoretical foundation for the Pareto distribution of international trade strength and introduction of an equation for international trade forecasting," Papers 2309.00635, arXiv.org.
    2. Mikrajuddin Abdullah, 2024. "Theoretical Foundation for the Pareto Distribution of International Trade Strength and Introduction of an Equation for International Trade Forecasting," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 52(1), pages 17-29, March.
    3. Hildegunn K. Nordås & Dorothée Rouzet, 2017. "The Impact of Services Trade Restrictiveness on Trade Flows," The World Economy, Wiley Blackwell, vol. 40(6), pages 1155-1183, June.
    4. Markus Brueckner & Ngo Van Long & Joaquin L. Vespignani, 2020. "Non-Gravity Trade," Globalization Institute Working Papers 388, Federal Reserve Bank of Dallas.
    5. Rouzet, Dorothée & Benz, Sebastian & Spinelli, Francesca, 2017. "Trading Firms and Trading Costs in Services: Firm-Level Analysis," Conference papers 332911, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    6. Yongke Yuan & Yitong Wang & Jialin Li & Mengwan Zhang, 2023. "Input-output Table and Input-output Model of Import and Export Internalization," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 13(6), pages 1-15.
    7. Stephan Maurer & Ferdinand Rauch, 2023. "Economic geography aspects of the Panama Canal," Oxford Economic Papers, Oxford University Press, vol. 75(1), pages 142-162.
    8. Paas, Tiiu, 2002. "Gravity Approach for Exploring Baltic Sea Regional Integration in the Field of International Trade," Discussion Paper Series 26379, Hamburg Institute of International Economics.
    9. Álvarez, Inmaculada C. & Barbero, Javier & Rodríguez-Pose, Andrés & Zofío, José L., 2018. "Does Institutional Quality Matter for Trade? Institutional Conditions in a Sectoral Trade Framework," World Development, Elsevier, vol. 103(C), pages 72-87.
    10. Inna Čábelková & Luboš Smutka & Svitlana Rotterova & Olesya Zhytna & Vít Kluger & David Mareš, 2022. "The Sustainability of International Trade: The Impact of Ongoing Military Conflicts, Infrastructure, Common Language, and Economic Wellbeing in Post-Soviet Region," Sustainability, MDPI, vol. 14(17), pages 1-14, August.
    11. Nazif Durmaz & John Kagochi, 2018. "Democracy and Inter-Regional Trade Enhancement in Sub-Saharan Africa: Gravity Model," Economies, MDPI, vol. 6(3), pages 1-17, August.
    12. Martin, Will, 2020. "Making Gravity Great Again," 2020: Economic Implications of COVID-19, December 14-15, Virtual Platform 339376, International Agricultural Trade Research Consortium.
    13. Ernest Liu & Aleh Tsyvinski, 2021. "Dynamical Structure and Spectral Properties of Input-Output Networks," Working Papers 2021-13, Princeton University. Economics Department..
    14. Kox, Henk L.M., 2022. "A micro-macro model of foreign direct investment: knowledge-based gravity forces, self-selection and third-country effects," MPRA Paper 115542, University Library of Munich, Germany.
    15. Safet KURTOVIC & Blerim HALILI & Nehat MAXHUNI, 2017. "The effect of preferential tariffs of the EU: Some evidence from B&H," Journal of Economics and Political Economy, KSP Journals, vol. 4(3), pages 247-262, September.
    16. Gurdip Bakshi & Xiaohui Gao & George Panayotov, 2021. "A Theory of Dissimilarity Between Stochastic Discount Factors," Management Science, INFORMS, vol. 67(7), pages 4602-4622, July.
    17. Anna Wong, 2017. "China’s Current Account : External Rebalancing or Capital Flight?," International Finance Discussion Papers 1208, Board of Governors of the Federal Reserve System (U.S.).
    18. Thomas Chaney, 2014. "The Network Structure of International Trade," American Economic Review, American Economic Association, vol. 104(11), pages 3600-3634, November.
    19. Harold M. Hastings & Tai Young-Taft & Chih-Jui Tsen, 2020. "Ecology, Economics, and Network Dynamics," Economics Working Paper Archive wp_971, Levy Economics Institute.
    20. Helena Marques, 2008. "Trade And Factor Flows In A Diverse Eu: What Lessons For The Eastern Enlargement(S)?," Journal of Economic Surveys, Wiley Blackwell, vol. 22(2), pages 364-408, April.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2308.06303. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.