The Gravity Model Free Essays

Literature review Many researches and theories have been written according to the trade flows between two different zones (EU and BRICS countries). A researcher Cheney in 2008 reported that â€Å"The gravity model† is a very tangible method for empirical trade analysis that explains bilateral trade is described in trade flows in terms of the size of the trading partners (by GDPs), the distance among these countries (long distance creates additional cost on trade) and several other geographical specifications or policy aspects of any bilateral trade relationship. As these factors affect the value of trade between countries, they also affect the duration of these trade flows Prusa in 2006. We will write a custom essay sample on The Gravity Model or any similar topic only for you Order Now Thus, we include the GDP of the destination country, the distance (in km) between Brussel, Berlin and the importer country’s capital city, and various variables indicating contiguity (i.e. controlling for potential border effects), the existence of bilateral and multilateral trade agreements, EU membership of the destination market and a common language between Belgium, Germany and its trading partner (Brazil, Russian Federation, India, China and South Africa). We also control for the initial value of the export relationship in a destination to account for the initial level of confidence the trading partners originally had in the sustainability of this relationship Brenton in 2010 and to check the presented findings by Besede in 2008 that trade relations starting large last longer. The measurement of trade policy is not often changed even when the definition of trade policy is restricted to traditional tariff and non-tariff barriers to international trade.The TRAINS database of the United Nations’ or the WITS database of the World Bank’s are systematically exist from 1989. In totally, we can observe that measures of tariffs aremore available than measures of non-tariff barriers. (Anderson and Wincoop 2004). In some situations, there are different types of trade policy measurements: As price – we can show ad-valorem tariffs which are easy to calculate and most comparable across industries and time because they create barrier in international trade and it influences directly to the product’s price. Furthermore, trade instruments such of that specific tariffs which are applied as a per-unit on imported goods. By analyzing the trade policy measurement across countries, industries and time that can effect inference about the effect of trade policies in cross-country and multi-industry researches (Harrigan and Barrow in 2009). A recent study by scholars from the  University of Kentucky College of Agriculture, Food and Environment, UK (2017) started to analyze the price of different type of chocolates in terms of consumers wants to purchase them. The research showed that online traders do not put higher cost for mixed chocolate than plain chocolate. Moreover, consumers agree to pay a premium for ordinary chocolate bars which are full of proteins and they will prefer to pay a premium for chocolate in comparison to milk chocolate according to dark chocolate’s important benefits. Another interesting fact is that to produce a chocolate labeled in developing countries is less cost under the fair trade as opposed to other types of chocolate. Another author, Tracey Massey, president of Mars Chocolate (2016) stressed that for increasing our profit we have to apply newer innovation in chocolate products because of consumers’ preferences. Thus, consumers love to taste new mixed products. In another tangible point, we refer to another scholar, Mr. Nielson (2016) corresponding to pricing and sales Nielson presented that chocolate as main product still covers most industry sales (88%) in the market. Hence, people buy chocolate much more during special ceremonies and holidays. In a light of another study of Mayer, which was presented in 2014, he noted that we have evaluate the level of international competition Belgian and German chocolate exporters face on each market. Firstly, we appreciate this observed level by taking into account the amount of chocolate imports from other countries (with the exception of Belgium and Germany). International competition can influence to the prolongation of the chocolate export in two levels. On the first level, countries importing a vast amount of chocolate may also import more chocolate from Belgium and Germany because of a strong preference for chocolate. On the second level, if international competition is tougher, Belgian and German exporters may see it more difficult to compete with other exporters in the market. Another important study came in 2011 by Lulia Monica from the Romanian Academy, Institute of World Economy. According to this paper, it can be seen that the relations between BRICS countries and these two developed countries is the key for the modernization on trade partnership. Thus, in recent decade the chocolate trade between both two areas have increased significantly, emphasizing the great evolution of Chinese and Russian shares on the market of Europe. In 2009, China became the third main exporter for the European market, and the main import country for Europe. After China, Russia came on the fourth place as exporting country, India the 8th and Brazil the twelfth. When it comes to the imports: China is the first import destination for Europe, Russia is the 3rd , Brazil the 9th and India the10th. As a result, this paper indicates that Belgium and Germany as EU countries is the most important trade partner for BRICS countries, both in the sector of exports and imports. Therefore, the points of this enquiry directed to analyze chocolate market share of the given countries above, the situation trade among these countries, to touch some parameters that directly affect the development of the chocolate market and to take into account trade factors in the different countries, how tariffs applied influence the level of export to BRICS countries. How to cite The Gravity Model, Papers