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3. Suppose that we estimate the following gravity regression in which (log) exports from country i to country j (In(Xij)) are a function of (log)
3. Suppose that we estimate the following gravity regression in which (log) exports from country i to country j (In(Xij)) are a function of (log) GDP in country i (In(Yi)), (log) GDP in country j (In(Y;)), the (log) distance between countries i and j in km (In(distij)), and an independently and identically distributed (i.i.d.) error term Gij: In Xij = 1.2In(GDP;) + 0.51n(GDP;) - 1.5 In(distij) + eij Assume that we are examining exports from Canada to China. If China becomes 4 times larger (as measured by GDP), what might we expect the new level of exports to be relative to the old level? A 0.5 B1 C 1.5 D 2 E Not enough information
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