Modelling Export Flows in the APEC Case: Static and Dynamic Gravity Model Approaches

Abstract

This paper reviews recent developments in the econometric methodology of gravity models and suggests an extension to the so-called Triple-Indexed Gravity model, which accounts for the fact that contemporaneous trade flows are likely to be strongly related to previous ones. All of the various models and methods are then illustrated with an application to export flows in the Asia Pacific Economic Co-operation region. Important explanatory variables were found to be domestic and target country Gross Domestic Product, domestic and foreign population, the real exchange rate, foreign currency reserves and the distance between the importing and exporting countries.