Economics 1021A/B Study Guide - Quiz Guide: Offshoring

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: bruce hammond

Document Summary

The gravity model (tinbergen) gives an estimation of the size of trade between two countries. Tij = vale of trade between country i and j. Dij = trade impediments between country i and j. a,b,c = values that measure importance of size and trade impediments. ln(tij) = a x ln(yi) + b x ln(yj) c x ln(dij) + ij. Distance between markets influences transportation costs and therefore the costs of import and export. Cultural affinity: if countries have cultural ties, it is likely that they also have stronger economic ties. Geography: ocean harbors, easily navigable rivers, lack of mountain barriers influence the ease of international transportation. Borders: crossing borders involves formalities that take time and can involve monetary costs like tariffs. The negative effect of distance has becomes smaller over time, but it is still significant. A country"s location on the globe is still very relevant for determining the ease of access to markets.