Understanding Gravity Model and Trade: A Review

The gravity model is a common practice base transportation costs on the distance travelled. Flow volumes and population size have a positive association, and there exists a negative association in distance and trade, i.e., when the two places in trade are separated by a great distance. Therefore, population size has a positive relation and distance has a negative relation. Empirical research also suggests that distance appears to reduce the total volume of trade in a country, and the gravity model shows the reverse relation. The present paper reviews understanding the gravity model and trade across countries.