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Question 1

1. What physical law do economic gravity models use as their analogy?

Answer 1

Newton’s Law of Gravitation.

Question 2

2. What type of economic flows do gravity models typically explain?

Question 3

The volume of trade

Answer 3

capital flows

Question 4

3. In Newton’s gravity equation ((GF_{ij} = M_iM_j / D_{ij}))

Answer 4

what do (M_i)

Question 5

• (M_i) and (M_j): The masses of the two objects.

Question 6

• (D_{ij}): The distance between them.

Question 7

4. Why are gravity models estimated using natural logarithms (ln)?

Question 8

To transform the multiplicative equation into a linear equation that can be easily estimated (multiplication becomes addition

Answer 8

division becomes subtraction).

Question 9

5. In a trade gravity model

Answer 9

what variable is used in place of “gravitational force” ((GF_{ij}))?

Question 10

Trade flows or exports ((E_{ij})) from country (i) to country (j).

Question 11

6. What does “great circle” refer to in the context of gravity models?

Question 12

It is a common method of measuring distance between countries.

Question 13

7. In the first alternative specification (Equation 3)

Answer 13

what is used to represent the economic “mass” of a country?

Question 14

Gross Domestic Product (GDP) of the countries.

Question 15

8. According to Equation 3

Answer 15

what are the expected signs for the coefficients on exporter GDP ((\beta_1)) and importer GDP ((\beta_2))?

Question 16

Positive ((\beta_1

Answer 16

\beta_2 > 0)).

Question 17

9. Under what circumstance can the coefficient for importer GDP ((\beta_2)) be negative

Answer 17

according to the text?

Question 18

When applied to agricultural goods

Answer 18

due to Engel’s Law (higher income leads to proportionally less demand for basic goods).

Question 19

10. In the second alternative specification (Equation 4)

Answer 19

what two variables are used to represent economic mass?

Question 20

GDP and Population (POP) .

Question 21

11. What are the two competing effects of population on trade mentioned in the text?

Question 22

• Market size effects (positive impact).

Question 23

• Import substitution effects (negative impact).

Question 24

12. In the third alternative (Equation 5)

Answer 24

how is economic mass defined?

Question 25

GDP per capita (\(\frac{GDP}{POP}\)).

Question 26

13. According to the text

Answer 26

who was the first to use a gravity model to analyze international trade flows

Question 27

Jan Tinbergen (1962) .

Question 28

14. What is the "Armington assumption"?

Question 29

The assumption of product differentiation by country of origin (e.g.

Answer 29

French wine is different from Italian wine).

Question 30

15. Which two economists are credited with early attempts to provide theoretical foundations to the gravity model?

Question 31

Anderson (1979) and Bergstrand (1985) .

Question 32

16. What "new trade theory" market structure has been used to provide a theoretical foundation for the gravity model?

Question 33

The monopolistic competition model .

Question 34

17. What common feature (related to production) do the Armington

Answer 34

monopolistic competition

Question 35

Complete specialization by countries in a particular good.

Question 36

18. According to Haveman and Hummels (2004)

Answer 36

what must gravity-based explanations account for when they do not rely on complete specialization?

Question 37

Trade frictions (e.g.

Answer 37

distance-based shipping costs

Question 38

19. In the assessment of the gravity model

Answer 38

what do the log-linear coefficients represent

Question 39

They represent elasticities (ratios of percentage changes). This is useful because they are "unitless" and comparable across countries and goods .

Question 40

20. What are the typical estimated elasticity values for GDP and distance?

Question 41

Close to 1.0 in value.

Question 42

21. Besides standard variables like GDP and distance

Answer 42

what else can gravity models help us understand?

Question 43

The impacts of policy variables

Answer 43

border effects

Question 44

22. Who is credited with the first use of a gravity model for international trade flows?

Question 45

Jan Tinbergen (1962) .

Question 46

23. According to the "Further Reading

Answer 46

" which author explored whether "distance has died" in gravity models? Brun, Jean-François et al. (2005) .