A Gravity Model with Variable Coefficients: The EEC Trade with Third Countries

Abstract

Gravity models with fixed coefficients have been used to explain the trade flows between countries different in income levels and separated by long distances. It is unrealistic to assume that these models can hold with the same parameters across very heterogeneous countries. This paper proposes and estimates an international trade model with variable coefficients constructed by combining Pöy‐hönen's and Linnemann's gravity‐based trade models via the expansion method. 1995 The Ohio State University