Application of the Gravity Model of International Trade to the Brazilian Case

Abstract

The gravity model of international trade has been found to provide accurate predictions relating to the quantity and reasons why countries trade with each other. In a simple model that is very similar to Newton’s law of gravitation, the gravity model predicts that nations will trade more with countries that have larger economies and with countries that are closer in distance – in the same way that objects feel greater attraction to more massive objects and objects that are closer in distance. This paper will further explain the gravity model and some of the potential variables that could also impact bilateral trade between two countries and limit the effectiveness of the gravity model through the use of current literature. An empirical section follows, in which data are tested for 167 of Brazil’s trading partners to see how effective the gravity model is at predicting trade volumes in this case. In the end, this paper concludes that the gravity model is sufficiently successful in predicting the trade volumes of Brazil and its trading partners for the test year of 2018.