Talk:Gravity model of trade

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In the model, isn't the Distance term supposed to be squared?

I checked my copy of Krugman's International Economics textbook. Some forms of the gravity model have powers on various terms, but the basic model is the one show in the article.--Bkwillwm 03:49, 2 April 2007 (UTC)

The point is that the model is use in the folowing specification:

ln(Bilateral Trade Flow) = α+β1ln(GDPCountry1)+β2ln(GDPCountry2)-β3ln(Distance)+ε

,which correspoinds to Distance^β3, if I am correct. Thus the model should be:

Fij=α(Mi^β1*Mj^β2)/Dinstance^β3

, whereas α, β1, β2, β3 are esitamed.

You are right in sayin, that the equation in the article is incorrect from the perspetive of gravity theory. Also it is incorrect from the perspetive of it's use in international trade. :-) FIN_PAT