To test the gravity equation of trade, a regression model was
Calculated for two nations, the United States and Canada,
Testing the correlation among:
A)regional trade, size of GDP, and distance for states and provinces.
B)intraindustry trade, size of GDP, and size of states and provinces.
C)bilateral trade and ratio of GDP for states and provinces.
D)bilateral trade, size of GDP, and distance for states and provinces.

Question

To test the gravity equation of trade, a regression model was
Calculated for two nations, the United States and Canada,
Testing the correlation among:
A)regional trade, size of GDP, and distance for states and provinces.
B)intra­industry trade, size of GDP, and size of states and provinces.
C)bilateral trade and ratio of GDP for states and provinces.
D)bilateral trade, size of GDP, and distance for states and provinces.

Quizplus · Accepted Answer

The gravity equation of trade includes bilateral trade, size of GDP, and distance between trading partners. Therefore, the best choice would be option D, which includes all three of these variables in the regression model. The other options include variables that are not directly related to the gravity equation of trade, such as regional trade, intra-industry trade, and size of states and provinces. The ratio of GDP for states and provinces may have some impact on trade, but it is not a direct factor in the gravity equation of trade.

To Test the Gravity Equation of Trade, a Regression Model