Trade & Open Economy · intro
What moves on the Gravity Model of Trade diagram
Lower trade costs act like greater economic mass in the gravity equation, lifting flows at any distance.
Trade follows gravity: size attracts, distance repels.
A trade deal slashes border frictions, effectively raising the attraction between the partners.
Flows jump at every distance. Agreements can't move geography, but they can shrink its price.
Examiners ask this as: trade agreement flows, tariffs cut bilateral.
Other scenarios on Gravity Model of Trade