《《IDEC 8009 presentation》.docxVIP

Research on the trade flow (export and import) of China based on the Gravity Model Good morning everyone, today I want to introduce something different, simple but very interesting, which I think could be the complement of classic trade theory. Brief introduction of the gravity model Firstly, I believe that most of us know more or less about the gravity- this kind of natural force of attraction between any two massive bodies, is directly proportional to the product of their masses and inversely proportional to the square of the distance between them. Since 1960s, our economists apply this theory into international trade field. It is the gravity model of trade for international economics. It is used to predict bilateral trade flows based on the economic sizes of each country and distance between two units . The model was first introduced by Tinbergen in 1962.The basic theoretical model for trade between two countries (we say country i and j) takes the form of: Fij=GMiMjDij (1) Where F is the trade flow, M is the economic mass of each country, usually it GDP as measurement. D is the distance G is a constant. The model has also been used to test the effectiveness of trade agreements and organizations such as the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO). As we can see, it is a very simple, clear and fresh model on the development of international trade development road. However, there are two main critical voices about this model: firstly, due to its originally source, which is from science sector, it is a sense that it lack of the theoretical basis; secondly, as we can see above, the way to construct this model is relied on the cross section data, which is weak to show a general trend of international development. However, after our economists’ further research on this model; its theoretical foundation has been increasingly solid. And with the rise and popularity of panel data analysis, another name is “Time Series - Cross S