Where F is the trade flow, M is the economic mass of each country, D is the distance and G is a constant. The model has been an empirical success in that it accurately predicts trade flows between countries for many goods and services, but for a long time some scholars believed that there was no theoretical justification for the gravity equation. The gravity international trade krugman pdf estimates the pattern of international trade.
While the model’s basic form consists of factors that have more to do with geography and spatiality, the gravity model has been used to test hypotheses rooted in purer economic theories of trade as well. One such theory predicts that trade will be based on relative factor abundances. Those countries with a relative abundance of one factor would be expected to produce goods that require a relatively large amount of that factor in their production. Investigations into real-world trading patterns have produced a number of results that do not match the expectations of comparative advantage theories. Comparative advantage in factor endowments would suggest the opposite would occur.