View the step-by-step solution to:

Question

Question 1. Consider the standard gravity equation for bilateral trade between any pair of

countries, i and

j:


Ti,j = A/Di,j * YiYj


The distance (measured in flight time) between the Shanghai and Beijing is 2 hours,

while the distance from Beijing to Tokyo is 3 hours. Bilateral trade between Shanghai

and Beijing is equal to 20% Shanghai's GDP, while bilateral trade between Beijing and

Tokyo is equal to 5% Tokyo's GDP.


a) Is the information above consistent with the standard gravity model above?

Why or why not?


b) In addition to flight time, shipments between Beijing and Tokyo are delayed

by customs inspection. If we assume that both trade between Beijing-Tokyo

and trade between Beijing-Shanghai fit the standard gravity model, how many

hours does this imply a shipment spends in customs between Beijing and

Tokyo?

Top Answer

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question