Gravity Model Of Gravity Model

Methodology
Method of analysis
In order to understand bilateral trade relation between India and Central Asia and its potential the Gravity Model was used. The gravity model is a simple model that has been extensively used to study bilateral trade patterns and determinants. The main objectives of model are the GDP of countries and distance between countries. The GDPs of the two countries represent the size of the economies that indulge in bilateral trade. In the country of export, the GDP reflects the output of the economy and acts as a proxy for the production capabilities. In contrast, GDP represents the income in the importing country. It denotes the size of the market for commodities - countries with a higher GDP are likely to have a greater demand for goods in the international market. In its simple form, the gravity model suggests that bilateral trade between two countries is directly proportional to the GDP of both the nations and inversely proportional to the distance between them.
Data source
The dependent variable in our analysis is the natural log of total bilateral trade (exports plus imports) measured in current international prices (dollar value). Our analysis is based on the maximum possible geographical coverage of world trade flows.

Rahman (2003) has estimated trade potential for Bangladesh using panel data approach with economic factors like openness, exchange rates etc rather than natural factors. Christie (2002) estimates trade potential for Southeast Europe using ordinary least square estimation on cross section data from 1996-99. Kalbasi (2001) has analyzed the volume and direction of trade for Iran in a 76 country sample. The group of countries has been divided into developing and industrial countries and trade flows have been examined to determine the impact, if any, of the stage of development on bilateral