Gravity model of trade explained (Excel)

[@NEDLeducation]

You can find the spreadsheets for this video and some additional materials here: drive.google.com/drive/folders/1sP40IW0p0w5IETCgo464uhDFfdyR6rh7 Please consider supporting NEDL on Patreon: www.patreon.com/NEDLeducation

[@kessler88]

The educational content of this channel and the simplicity of explanation is second to none. Bravo 😃👍

[@89rosswebb]

Superb work, thank you Just used your example to work out the gravity model for the CPTPP for university :)

[@HeinrichXiao]

Better than the title suggests!

[@vladk9152]

As an engineering student, this is my wet dream of describing economics. 😆

[@renatahuseynova7117]

thanks for the great explanation! everything is very clear

[@NEDLeducation]

Hi Renata, and glad you liked the video! Thanks for the feedback and stay tuned for more videos on econometrics!

[@alansamuel2454]

Really enjoyed this video, thanks for the straightforward and detailed explanation! What do you suggest one can use to analyse the potential trade benefits from a similar standpoint ie for an upcoming RTA for which negotiations are currently ongoing such as the India EFTA agreement?

[@Giannis_Giannis-t4h]

Exceptional work!! Is it possible to find the excel sheet of your video;Additionally, is it possible to adjust this excel sheet for more than one year;

[@adrianadiaz-vd3eg]

Very good video with easy explanations and great examples. Can you please tell me were you got the bilateral trade data from? i didnt understand

[@NEDLeducation]

Hi Adriana, and happy you liked the video! Thanks for the question, I have obtained the bilateral trade flow data from the International Trade Center: intracen.org/resources/trade-statistics

[@tamerelhaija3445]

I am conducting an analysis to assess the impact of the CETA trade agreement on trading margins using the gravity equation. One of the challenges I'm facing is how to calculate the distance variable for Europe as a single entity. While I understand how to calculate distance between individual countries, I am uncertain about the appropriate approach for aggregating distance for the entire EU region. Also the language dummy how do i account for that?

[@thibaultlemoteux5050]

Hello, I need to calculate the estimations by myself. I got all of datas you said, but I don't know how to have the estimations. Can you explain me, or have the formula ? Thank you so much

[@milanlouf2210]

Very interesting Question, would be great to have an answer. Thank you

[@reemsalah4692]

please if I got high values in standard error and Intercept coefficient what is it mean in the gravity model?

[@faizaahmed6488]

Sir its a very good vedio the way you explain is awsome. Sir will u plz tell me something behvioral finance that done with secondary data like which anomalies come init or which variable we use to measure heuristic behaviour in finance. Thanks

[@NEDLeducation]

Hi again Faiza, and glad you are enjoying the videos! I see you have already watched the holiday effect tutorial, but I can as well point you towards my behavioural finance playlist that you may find of interest: kzbin.info/aero/PLE4a3phdCOavPRUkIQeoiuRwGzZfloqtE

[@zainabkhan2475]

what about beta naught ant epsilon ij ? how to get the values of them???

[@NEDLeducation]

Hi Zainab, and many thanks for the question! Beta naught is the constant term (the analogue of the gravitational constant for the econometric equation). It is presented in cell G865 on the Estimation sheet. Epsilon is the residual term so you can calculate it for any observation by subtracting the predicted value of log trade from the observed value of log trade.

[@neelofarrashid607]

Pllz.. Would you help me.. How to determine potential of trade.. By the predicted value - actual value of trade

[@غزةفيالقلب-ذ5د]

شكرا

[@Septumsempra8818]

I've been trying to get this data for a while. Anyone know where I can get good bilateral trade data?

[@NEDLeducation]

Hi Alexandros, and thanks for the question! My data comes from the International Trade Center.

[@yashodasingh9869]

Hello, I'm facing some problem with downloading the data of tarrif, please help me

[@tridishabayan9243]

Can I use the same process in case of trade between India and GCC ? I guess it must be on panel data

[@NEDLeducation]

Hi Tridisha, and thanks for the great question! If you are interested in a particular pair of countries/entities, this framework works less well as trade and GDP are autocorrelated and distance between countries stays the same. I would suggest looking at trade flows between India and GCC predicted by the model and compare them to the actually observed trade flows. Differences could hint at higher/lower levels of comparative advantage and technical specialisation, currency over/undervaluation, and political favourability/hostility.

[@tridishabayan9243]

Thank you sir

[@UGCNETECONOMICS]

What is estimation technique

[@NEDLeducation]

Hi, and thanks for the question! The estimation technique is a simple multiple linear regression, nothing fancy!

[@Upbbf]

Where are number of Years? Is this is Stock data for Countries.

[@batumeftun]

how come Azerbaican and France trade with themselves?

[@NEDLeducation]

Hi, and well-spotted! This peculiarity in the data could be due to re-exporting, but it does not affect model estimation results as I exclude same country pairings before running the regression.