Reference no: EM133372668

Gravity model: suppose there are two countries in the world, Japan and Malaysia. Japan's GDP is 300 while Malaysia's GDP is 150. The distance between the two countries is 100. Assume that A = 1.

1. Using the simple version of the gravity model, calculate what the predicted level of trade should be between Japan and Malaysia.

2. Suppose that the level of trade between Japan and Malaysia goes from the predicted level you calculated in part a) to the predicted level from part a) plus 50 (i.e. if your answer from part a) was x, suppose that trade is now x+50 between Japan and Malaysia). Describe two ways that this could occur, either in the gravity model or outside of it.