The paper "International Markets Institutions and Policy" is a perfect example of a report on macro and microeconomics. The theoretically derived gravity model as described by Anderson and van Wincoop in "Gravity with gravitas" (2003) is a gravity model used in international trade flows. This is a frequent approach to modeling joint and mutual trade flows. One of the weaknesses of this model is its theoretical base as well as the poor micro foundation. The gravity equation that was used for describing the trade flows was first made in the empirical literature.
There were no many attempts to justify the theoretical perspective of the model. Support for this gravity model was at first very poor and low. Support came to improve in the second half of the 1970s, (Santos & Tenreyro 2004). This is after numerous theoretical developments were made to fill the gap that existed. This report undertakes to bring out the superiority of the theoretically derived gravity model as described by Anderson and van Wincoop over the empirically-based gravity model. The superiority of the theoretically derived gravity model Anderson and Van Wincoop (2003) model are one of the most frequently used empirical work.
This model sets out the gravity model; it emphasizes the theoretical underpinnings and the important role that it plays in simulation, inference, and driving estimation in applied work. Gravity with gravitas is the ingredients that are needed in order to put together a gravity form with gravitas. The tricky part is to combine them in the right way, (Anderson & Wincoop 2003). It is generally apprehensive with bilateral trade value (the exports from one country to another with respect to a specific product variety).
Anderson and Van Wincoop's formulation is one of the important benchmarks. It is not only used for estimating equations but also for justifying the theoretical gravity model. The gravity model has been in use since the 1940s. The theoretical gravity model has been applied to a wide range of goods as well as factors of production. It has been applied to factors and goods moving across national and regional boundaries under diverse situations and conditions. The theoretical gravity model used for trade is quite similar to the physics model.
Anderson, J, & Van Wincoop, E, 2001, Gravity with gravitas: a solution to the border puzzle: National Bureau of Economic Research.
Anderson, J, 2010, the gravity model: National Bureau of Economic Research.
Anderson, J, and Wincoop E, V 2003, “Gravity with Gravitas: A Solution to the Border Puzzle”, the American Economic Review, Nashville.
Baier, S, (2008), “Do Economic Integration Agreements Actually works”, The World Economy (2008).
Baldwin, Richard E, and Daria Taglioni, 2007, “Trade Effects of the Euro: A Comparison of Different Estimators”, Journal of Economic Integration, 22(4), 780-818.
Pail, R, Bruinsma, S, Migliaccio, F, Förste, C, Goiginger, K, 2011, first GOCE gravity field models derived by three different approaches, Journal of Geodesy, 85(11), 819-843.
Santos Silva J, and Tenreyro S 2004, “The Log of Gravity”, FRB Boston (2003).