The Gravity Model Of Trade Applied To Africa

Abstract

The gravity model states that trade between any two countries is proportional, other things equal, to the product of the two countries’ GDPs, and diminishes with the distance between the two countries. The logic is that larger economies tend to spend large amounts on imports and attract large share of other countries spending (exports) because they produce large quantity and variety of goods and services. Distance, on the other hand, tends to lessen trade between countries because of transportation costs and other intangible barriers, such as language, geography, and historic colonial relationships.  The following specific hypotheses from the gravity model of trade are tested with respect to African countries alone:  The amount of exports by one African country to another is inversely related to the distance between the two countries,  The amount of exports by one African country to another reflects the GDP of the country to whom the exports are sent, The amount of exports directly reflects a country’s own GDP, and Countries associated with the same colonial power experience greater trade.  Each of these hypotheses is tested with logarithmic forms of the variables in the hypotheses.  While the resulting logarithmic model works is statistically significant and bears the correct signs, it does not show colonial patterns to be a strong as those found in other studies that are focused on inter-continental trade relationships.  The significance of colonization in other studies may be a surrogate for the degree of development of nations.  Since trade grows less than proportionately both with respect to the GDP of the importing nation and with respect to the GDP of the exporter, this study shows a disappointing trade impact of growth in the developing world on the potential development of Africa through export growth.