What is the gravity model?


The gravity model is a widely used tool in economics. It is used in academic research and applied policy analysis. It is especially useful for estimating the impact of various trade policies, either before the policy is implemented or after. The gravity model can be used to study a particular industry or the entire economy. 

 

empirical power

The gravity model is rooted in data. It estimates its key parameters from observing a large number of data points. It has a very high predictive ability.

easy and consistent parametrization

The same model is used for estimation and simulation, ensuring consistency. Non-tariff measures can be introduced directly. Model parameters are easy to estimate with the latest available data.

theoretical backing

The gravity equation for international trade has been derived from multiple international trade theories.

Flexibility and modularity

The model allows users to construct a modeling environment that is tailored to their specific needs.