Upload
marco-tagliabue
View
226
Download
0
Embed Size (px)
Citation preview
7/31/2019 Gravity Model for Spain
1/35
BERUTTI STEFANO 761948GELSOMINO LUCA MATTIA 759936MARRA PAOLA ROBERTA 765542
MUNNAMGI HANUMAD VASANTH 764895
Gravity
model for
Spain
Politecnico di Milano International Economics 2010/2011
7/31/2019 Gravity Model for Spain
2/35
Agenda
Introduction
Focus on Trade
Theory
Theoretical Prediction
Data/Results of the different attempts
Sum up Final Results
Conclusion
08/06/2011 Gravity Model For Spain 2
7/31/2019 Gravity Model for Spain
3/35
Introduction
European Country since 1986
Official language: Spanish
Government: parliamentarydemocracy andconstitutional monarchy
Population: 46030109 (2010) Currency: Euro ()
since 1999
08/06/2011 Gravity Model For Spain 3
7/31/2019 Gravity Model for Spain
4/35
Introduction
08/06/2011 Gravity Model For Spain 4
1053.91
1062.59
1084.65
2009 2010 2011 (est.)
GDP nominal
32030
22997
30639
23091
32175
23506
GDP per capita ($) GDP per capita ()
GDPper capita
Billion $
7/31/2019 Gravity Model for Spain
5/35
Focus on Trade
0
50
100
150
200
250
300
350
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Billionof$ Imports and Exports
Import
Export
08/06/2011 Gravity Model For Spain 5
7/31/2019 Gravity Model for Spain
6/35
Focus on Trade
08/06/2011 Gravity Model For Spain 6
70.19%
29.81%
0% 20% 40% 60% 80%
EUROPEAN
NOTEUROPEAN
Exportsof Spain
FRANCE20%
GERMANY13%
ITALY10%
PORTUGAL9%
UNITEDKINGDOM
9%UNITEDSTATES
5%
NETHERLANDS4%
BELGIUM &
LUXBG.3%
MEXICO1%
MOROCCO1%
OTHER
25%
Spain mainpartners
7/31/2019 Gravity Model for Spain
7/35
Focus on Trade
08/06/2011 Gravity Model For Spain 7
7/31/2019 Gravity Model for Spain
8/35
Focus on Trade
08/06/2011 Gravity Model For Spain 8
7/31/2019 Gravity Model for Spain
9/35
Theory
The basic Gravity model tries to predictbilateral trade flows using as inputs the
economic size (usually GDP) and distancebetween two countries.
Usually to estimate this equation we use thelogarithm of both sides:
08/06/2011 Gravity Model For Spain 9
7/31/2019 Gravity Model for Spain
10/35
Theory
This model usually works because large
economies tend to spend more money thanthe smaller ones and also they tend to attractlarger shares of other countries spendingsince they produce more.
Other variables could be relevant: language,currency, FTA, exchange rate, etc.
08/06/2011 Gravity Model For Spain 10
7/31/2019 Gravity Model for Spain
11/35
Proposition
Show that Spains patterns of trade respectthe gravity model of trade.
Show that cultural, economical, and social
factors affect Spains exportation.
08/06/2011 Gravity Model For Spain 11
7/31/2019 Gravity Model for Spain
12/35
Theoretical Prediction
What affect international trade flows ofSpain?
Transportation costs Cultural factors
Comparative Advantages
FTA, currency
Economic Activities of countries
FDI,
08/06/2011 Gravity Model For Spain 12
7/31/2019 Gravity Model for Spain
13/35
Theoretical Prediction
Transportation Costs:
Shipping costs (/ km*t);
In transit stocks: f(delivery LT; value); Tariffs.
Cultural Factors:
Language; History;
Habits.
08/06/2011 Gravity Model For Spain 13
7/31/2019 Gravity Model for Spain
14/35
Theoretical Prediction
Comparative advantages:
Factor endowment;
Productivity. FTA, currency:
Exchange rate;
Tariffs. Economic Activities:
Supply and demand of goods.
08/06/2011 Gravity Model For Spain 14
7/31/2019 Gravity Model for Spain
15/35
First Attempt
We approximated:
Transportation Costs and cultural factor with
distance; Economic Activities with GDP;
Everything else is considered negligible.
Therefore we expect a quite good R2
coefficient(and so a good correlation) between flows andthese variables, even if some determinants arenot taken in consideration.
08/06/2011 Gravity Model For Spain 15
7/31/2019 Gravity Model for Spain
16/35
First Attempt
Variable Expected ImpactSpain GDP +
Country GDP +
Distance -
08/06/2011 Gravity Model For Spain 16
7/31/2019 Gravity Model for Spain
17/35
Data
08/06/2011 Gravity Model For Spain 17
Optimal Data Our Data
DistanceBetween Economic centers ofcountries
Barycenter weighted onpopulation distribution
Weighted on Transportationmodes Geodetic distance
EconomicActivities
Economic Size of the country GDP current price in $
Trade FlowsEconomic Interactions
between countries
Export
Number ofCountries
All World 130 countries
TimeframeAfter World War II (stablesituation) ?
From 1988 to 2009
7/31/2019 Gravity Model for Spain
18/35
Data - First Attempt
08/06/2011 Gravity Model For Spain 18
7/31/2019 Gravity Model for Spain
19/35
Results - First Attempt
Results
R Pearson 0,8939
R square 0,7992
08/06/2011 Gravity Model For Spain 19
Coefficients Confidence Interval
Intercept 1,1900
Spain GDP 0,3653 0,2607 0,4699
Country GDP 0,9099 0,8906 0,9291Distance -1,0989 -1,1584 -1,0389
79.92% of Spains exports are explained bythe model.
As expected:
Distance has a negative impact;
GDPs have positive impact.
7/31/2019 Gravity Model for Spain
20/35
Second Attempt
How can we improve the results obtained? Cultural Factors:
Colonialism (expected impact +)
Spanish Language (expected impact +)
08/06/2011 Gravity Model For Spain 20
7/31/2019 Gravity Model for Spain
21/35
Data Second Attempt
08/06/2011 Gravity Model For Spain 21
Categorical variables :
7/31/2019 Gravity Model for Spain
22/35
Results Second Attempt
Spanish Language increases the correlation
Colony is not so relevant because colonies are dated backto the beginning of 19th century and are already includedin the Spanish variable.
08/06/2011 Gravity Model For Spain 22
Results
R Pearson 0,9095
R squared 0,8271
Coefficients Confidence Interval
Intercept 1.7437
Spain GDP 0,3905 0,2933 0,4876
Country GDP 0,8838 0,8657 0,9018Distance -1,1996 -1,2558 -1,1434
Spanish 1,0524 0,9228 1,1819
Colony 0,2953 -0,0719 0,6625
Sharing the languageincrease exports by
about 3 times.
7/31/2019 Gravity Model for Spain
23/35
Third Attempt
How can we improve even further the results
obtained? European Union (Custom Union\Common
Market) (expected impact negligible)
(Economic Union) (expected impact +)
08/06/2011 Gravity Model For Spain 23
7/31/2019 Gravity Model for Spain
24/35
Data Third Attempt
08/06/2011 Gravity Model For Spain 24
Categorical variables :
7/31/2019 Gravity Model for Spain
25/35
Results Third Attempt
Europe, as we expected, doesnt affect the model Also is meaningless in this model in contrast
to what we expected.
08/06/2011 Gravity Model For Spain 25
Results
R Pearson 0,8941
R squared 0,7995
Coefficients Confidence Interval
Intercept 1,3564
Spain GDP 0,3538 0,2485 0,4592
Country GDP 0,9125 0,8913 0,9336Distance -1,1096 -1,1813 -1,0379
Euro 0,2595 -0,0271 0,5462
Europa -0,1479 -0,3535 0,0576
7/31/2019 Gravity Model for Spain
26/35
Results - Third Attempt
08/06/2011 Gravity Model For Spain 26
Why does not affect the model?
From 1999 to 2002: benefits of being part of an
economic union stable currency and lessuncertainty of e. (mean errors>0)
After 2002: depreciation of $ cheaper goods fromUS less benefits
Exports of Spain as before the introduction of(mean errors
7/31/2019 Gravity Model for Spain
27/35
Results Third Attempt
08/06/2011 Gravity Model For Spain 27
-0.5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
MeanError
ExchangeRate Model mean error
and Exchange rates
$/
$/['000] Peseta
Mean Error
7/31/2019 Gravity Model for Spain
28/35
Results Third Attempt
08/06/2011 Gravity Model For Spain 28
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
2.2%
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
%ofExportmktshare
Spain's ExpMarket Share
y = -0.47x + 0.77R = 0.93
y = -0.77x + 1.27R = 0.96
0.4
0.6
0.8
1
1.2
1.4
1.6
-0.6 -0.4 -0.2 -1E-15 0.2 0.4 0.6
ExchangeRate
Mean Error
Mean Error andExchange Rates
$/100Peseta
$/
7/31/2019 Gravity Model for Spain
29/35
Sum up
08/06/2011 Gravity Model For Spain 29
0.79
0.8
0.81
0.82
0.83
0.84
R2 Trend
-0.561
0.867
0.128
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
Distance Country GDP Spain GDP
2nd OrderPartial Correlation
7/31/2019 Gravity Model for Spain
30/35
Final Results
What is the very final outcome?
08/06/2011 Gravity Model For Spain 30
Correlation
R Pearson 0.911
R square 0.830
7/31/2019 Gravity Model for Spain
31/35
Conclusion (the real ones)
What is not included in the model?
Comparative advantages
FDI
Religion
Globalization
Political Variables
Remoteness
08/06/2011 Gravity Model For Spain 31
7/31/2019 Gravity Model for Spain
32/35
Thank you!
Thank you for your attention!
Questions and answers
08/06/2011 Gravity Model For Spain 32
7/31/2019 Gravity Model for Spain
33/35
Bibliography
GDP from www.imf.org
Trade Data from www.eurostat.eu
Introduction data from www.wikipedia.org Theory from class notes, Krugman Obstfeld
International Economics - Theory & Policy - 8thEdition, and Head (2000).
Additional Data from: www.wto.com; www.inflationdata.com(oil price); www.bancaditalia.it (exchange rates);www.oecd.org.
08/06/2011 Gravity Model For Spain 33
http://www.imf.org/http://www.eurostat.eu/http://www.wikipedia.com/http://www.wto.com/http://www.inflationdata.com/http://www.bancaditalia.it/http://www.oecd.org/http://www.oecd.org/http://www.bancaditalia.it/http://www.inflationdata.com/http://www.wto.com/http://www.wikipedia.com/http://www.eurostat.eu/http://www.imf.org/7/31/2019 Gravity Model for Spain
34/35
Appendix 1
A country can export at least its entire GDP:
Where:
S is a function of different factors:
For example, our first attempt was to consider:
08/06/2011 Gravity Model For Spain 34
7/31/2019 Gravity Model for Spain
35/35
Appendix 1 (cont.)
And then
That gives:
Different attempt are basically further explanationof the function g().
The gravity model of trade can be seen as adifferent and more complex interpretation of thedemand and supply curve of a country.
08/06/2011 Gravity Model For Spain 35