1.The following gravity model is specified and very well suited to estimate the effect of technical and sanitary regulations on trade flows. The presented gravity model was this one:

ijt

1

it

2

jt

3

ijk ijt

ijt

m = expb ln p + b ln c + b ln d + ... + b rk + ek

Where

mijt

is the imports from exporter i to importer j at time t ;

pit

and c jt

present the annual meat

production and consumption quantities of exporter i and importer j ,

r

k ijt

dij

is the bilateral distance between

exporter and importer, and k

is the sum of the k different technical and sanitary measures, and the 's

represent the estimated coefficients. The following table presents the results of the estimation of the variable coefficients:

The estimated coefficient of variable:

Result

ln of exporter's meat production

ln of importer's meat consumption ln of distance

Sum of technical/sanitary measures

1.526***

1.678***

-0.931*** 0.015***

a.What is the impact of the technical and sanitary measures on imports?

b.What does the other three coefficient means?

c.If you want to identify the impact of a free trade agreement between a group of countries (as a subset of J and I) in a given time throughout the trade periods. How would you reformulate the above gravity model? Rewrite the gravity specification. Only define the additional notations if necessary.

d. Could you introduce inward and outward multilateral resistance terms in the specified gravity model? (Hint: put a measure that can be utilized in the gravity application as discussed in the class).

e.Add at least 4 additional explanatory variables commonly used in gravity model equations and identify the expected sign of their coefficients. Explain the reason for each sign in one sentence.