Bilateral Trade in the Economies of Various Countries Essay

Bilateral Trade in the Economies of Various Countries - Essay Example Trade flows from traditional partners is becoming complicated. This means that distance is also an important factor in the bilateral trade. Bilateral trade plays an important role in the economies of various countries. However, a country’s trade with another or others depends on a number of factors. Due to the developments in bilateral trade such as regional integration are major factors (Brun, Carrere and Guillaumont 99). These coupled with the distance between trading partners they impact on bilateral trade. These forces countries to find viable options that help attract trade flow. This study analyses USA’s situation with relation to its traditional trade partners from Europe, Asia, Africa and South America. The countries used in this study were selected on the basis of their GDP, exports volume and traditional trading activities with the USA. As a result, bilateral trade flows’ gravity model is estimated between the USA and its trading partners for the periods 1990 and 2011. The general hypothesis is: The gravity equation is considered probably the most applied empirical trade device for more than a decade now. Its main advantage is that when it is applied to extensive variety factors and goods moving across national and regional borders under varying circumstances, it always produces a good fit (Anderson and Eric 170). This makes it an ideal device for econometric methods of measuring trade. Nonetheless, with the emergence of new economic theory, advancement in international trade, and globalization, a unique empirical application of the model with respect to a country’s GDP and export capability in bilateral trade is required. The Gravity trade model helps in predicting the flows of the bilateral trade and these predictions are with the distance between units in their respective  economic directions as the basis of prediction. The model can be applied in various circumstances to provide an explanation in the flow of commodities on the international scale (Anderson 106).