Very basic: constant in gravity-model of trade

[939]

Very basic: "constant" in gravity-model of trade

The gravity model of trade states that trade between countries depends on the size of their economies (bigger = more trade) and distance between them (larger = less trade).

The formula is: Trade = G ((Mi*Mj)/(Distance))

Mi is size of economy i, and Mj is size of economy j, and G is a "constant". I am seeing this term, "constant" used more and more in Economics. Can someone tell me what exactly it means, especially in a formula like this?

 

[tiny-tim]

hi 939!

… I am seeing this term, "constant" used more and more in Economics. Can someone tell me what exactly it means, especially in a formula like this?

"constant" means that we use the same value of G in all cases

it doesn't matter which two countries it is, or how far apart they are …

the same formula always works, with the same value of G ​

 

[939]

hi 939!


"constant" means that we use the same value of G in all cases

it doesn't matter which two countries it is, or how far apart they are …

the same formula always works, with the same value of G ​

Thanks.

The only thing I don't get is why bother even putting G there? If there's two answers from the calculation, 3/2 and 1/2, they'll have the same ratio regardless of what constant G is, no?? In that sense you could just leave out the G all together :-/

 

[tiny-tim]

If there's two answers from the calculation, 3/2 and 1/2, they'll have the same ratio r…

i don't understand …

can you give an example?​

 

[Nugatory]

Thanks.

The only thing I don't get is why bother even putting G there? If there's two answers from the calculation, 3/2 and 1/2, they'll have the same ratio regardless of what constant G is, no?? In that sense you could just leave out the G all together :-/

You can, but we might be interested in the numerical value of the trade instead of just how it compares with the trade between two other economies. Of course if I know the value of the trade between one pair of economies of known size and separation, I can use the ratios to work out the value for any other pair - but that's basically equivalent to calculating the value of G.

 

[SteamKing]

I think the author of this 'trade law' was a frustrated physicist. Now, he is trying to develop a new 'System of the World' by reformulating economics in terms of various laws like physics has.