Economics · International Trade Models
The 'Gravity Model' of international trade predicts that the volume of bilateral trade between two countries is:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Proportional to the absolute difference in per capita incomes, reflecting demand dissimilarity.
- 2Determined solely by the difference in factor endowments, irrespective of geographic proximity.
- 3Directly proportional to the product of their GDPs and inversely proportional to the geographic distance between them.✓
- 4Inversely proportional to the product of their GDPs and directly proportional to the geographic distance between them.
Correct answer
Directly proportional to the product of their GDPs and inversely proportional to the geographic distance between them.
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