Very basic: constant in gravity-model of trade

In summary, the gravity model of trade is based on the size of economies and the distance between them. The formula includes a constant, denoted as G, which represents the same value in all cases. This allows the formula to work for any pair of economies, regardless of their distance or size. The value of G may seem unnecessary, but it allows for the calculation of the numerical value of trade between any two economies. This concept is similar to how physicists use constants in their laws and formulas.
  • #1
939
111
2
Very basic: "constant" in gravity-model of trade

The gravity model of trade states that trade between countries depends on the size of their economies (bigger = more trade) and distance between them (larger = less trade).

The formula is: Trade = G ((Mi*Mj)/(Distance))

Mi is size of economy i, and Mj is size of economy j, and G is a "constant". I am seeing this term, "constant" used more and more in Economics. Can someone tell me what exactly it means, especially in a formula like this?
 
Last edited:
Mathematics news on Phys.org
  • #2
hi 939! :smile:
939 said:
… I am seeing this term, "constant" used more and more in Economics. Can someone tell me what exactly it means, especially in a formula like this?

"constant" means that we use the same value of G in all cases

it doesn't matter which two countries it is, or how far apart they are …

the same formula always works, with the same value of G :wink:​
 
  • Like
Likes 1 person
  • #3
tiny-tim said:
hi 939! :smile:


"constant" means that we use the same value of G in all cases

it doesn't matter which two countries it is, or how far apart they are …

the same formula always works, with the same value of G :wink:​

Thanks.

The only thing I don't get is why bother even putting G there? If there's two answers from the calculation, 3/2 and 1/2, they'll have the same ratio regardless of what constant G is, no?? In that sense you could just leave out the G all together :-/
 
  • #4
939 said:
If there's two answers from the calculation, 3/2 and 1/2, they'll have the same ratio r…

i don't understand :confused: …

can you give an example?​
 
  • Like
Likes 1 person
  • #5
939 said:
Thanks.

The only thing I don't get is why bother even putting G there? If there's two answers from the calculation, 3/2 and 1/2, they'll have the same ratio regardless of what constant G is, no?? In that sense you could just leave out the G all together :-/

You can, but we might be interested in the numerical value of the trade instead of just how it compares with the trade between two other economies. Of course if I know the value of the trade between one pair of economies of known size and separation, I can use the ratios to work out the value for any other pair - but that's basically equivalent to calculating the value of G.
 
  • Like
Likes 1 person
  • #6
I think the author of this 'trade law' was a frustrated physicist. Now, he is trying to develop a new 'System of the World' by reformulating economics in terms of various laws like physics has.
 

Related to Very basic: constant in gravity-model of trade

1. What is a constant in the gravity-model of trade?

In the gravity-model of trade, a constant is a numerical value that represents the overall strength of the relationship between two countries. It is used to account for factors that are not explicitly included in the model, such as cultural similarities, historical ties, and political alliances.

2. How is the constant calculated in the gravity-model of trade?

The constant in the gravity-model of trade is typically estimated using statistical techniques, such as regression analysis. This involves analyzing data on trade flows between countries and determining the best fit for the constant value based on the observed patterns.

3. What is the significance of the constant in the gravity-model of trade?

The constant in the gravity-model of trade is important because it allows us to account for unobservable or unmeasurable factors that may influence trade between countries. Without this constant, the model would not accurately reflect the real-world complexities of international trade.

4. Can the constant in the gravity-model of trade change over time?

Yes, the constant in the gravity-model of trade can change over time as the relationship between countries evolves. Factors such as changes in political alliances, economic conditions, and cultural ties can all impact the strength of the relationship between countries and therefore affect the value of the constant.

5. Is the constant the only variable in the gravity-model of trade?

No, the constant is just one of several variables in the gravity-model of trade. Other important variables include the size of the economies in question, the distance between them, and their level of economic development. These variables work together to help explain the patterns of trade between countries.

Similar threads

I Kochen-Specker contextuality
    • Quantum Physics
Replies
3
Views
690
I Optimization problem with multiple outputs: impossible?
    • General Math
Replies
6
Views
1K
Questions About the Atmospheres of Various Sizes of Artificial Planets
    • Sci-Fi Writing and World Building
Replies
0
Views
878
I Simple model of thermal shape fluctuations of liquid interface
    • Thermodynamics
Replies
1
Views
648
A Higgs inflation and quadratic gravity
    • Beyond the Standard Models
Replies
1
Views
410
Constants and variables (the very basics)
    • General Math
Replies
5
Views
1K
I Using trigonometry to create a radar for a game.
    • General Math
Replies
9
Views
1K
Can Math Model Real-World Camera Focusing Dynamics?
    • Mechanics
Replies
1
Views
1K
Writing: Input Wanted A 'failed' Runaway Moist Greenhouse: Need help to model...
    • Sci-Fi Writing and World Building
Replies
0
Views
330
I Does the New Muon g-2 Measurement Indicate Physics Beyond the Standard Model?
    • High Energy, Nuclear, Particle Physics
Replies
2
Views
1K

Hot Threads

Recent Insights

Back
Top