REVIEW OF THE USAGE OF GRAVITY MODELLING APPROACH IN ESTIMATING BILATERAL TRADE FLOWS
REVIEW OF THE USAGE OF GRAVITY MODELLING APPROACH IN ESTIMATING BILATERAL TRADE FLOWS

Summary/Abstract: This paper aims to present the main developments of gravity model and its usage in estimating bilateral trade flows’ determinants. Furthermore, it emphasises the importance of determining the adequate model specification in order to get the unbiased and reliable estimation results. In this respect, the importance of accounting for the trade barriers and trade history between trading partners, as well as different methods for estimating these effects, are elaborated in the paper. As there is no consensus on which variables should be included in the model or how the model should be estimated it is important to take into account the best practice in the recent studies, presented in this paper, in order to get more precise results.

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