GRAVITY MODEL AND TRADE IN SERVICES

Refer to the situation described in Question (1). However, assume that countries "A", "B" and "C" only engage in trade in services among them.

In relation to the bilateral trade between the three countries and everything else constant, the Gravity Model would predict that:

Select one:

Select one:

i. Bilateral trade between "A" and "B" is the largest.

ii. Bilateral trade between "A" and "C" is the largest.

iii. Bilateral trade between "B" and "C" is the largest.

iv. The Gravity Model does not apply to trade in services.

v. Bilateral trade between all three countries is the same.