V. What conclusions can you make from the following statements? 1. The gravity model is often used to not only explain trade between two countries, but also to investigate the reasons why they don't. Illustrate this anomaly with suitable examples and reasons. 2. Ireland and Belgium have very similar trading patterns. Both trade considerably more with the United States than with the European Union, even though they are EU members and are closer to the EU common market than the American market. Explain this anomaly using the gravity model. 3. A century ago, most British imports came from relatively distant locations: North America, Latin America, and Asia. Today, most British imports come from other European countries. How does this fit in with the changing types of goods that make up world trade?

VI. Reflection The learners will write their personal insights about the lesson using the prompts below

I understand that I realized that

VII. References

I. About the Module In 2015, the world as a whole produced goods and services worth about $74 trillion at current prices. Of this total, about 30 percent was sold across national borders: World Trade in goods and services exceed $21 trillion That's a whole lot of exporting and importing. In later chapters, we'll analyze why countries sell much of what they produce to other countries and why they purchase much of what they consume from other countries. But before that let's begin by describing who trades with whom. [1. Learning Goals After reading this chapter, you will be able to: Distinguish between international and domestic economic issues. Explain why seven themes recur in international economics, and discuss their signicance Distinguish between the trade and monetary aspects of international economics. [1]. Discussion World Trade: An Overview The 5 largest trading partners with the US. are Canada, China, Mexico, Japan, and Germany. The largest economies in the EU (European Union) undertake the largest fraction of the total trade between the EU and the US. The gravity model predicts that the volume of trade is directly related to the GDP of each trading partner and is inversely related to the distance between them. Besides size and distance, culture, geography, multinational corporations, and the existence of borders inuence trade. Modern transportation and communication have increased trade, but political factors have inuenced trade more in history. Today, most trade is in manufactured goods, while historically agricultural and mineral products made up most of the trade. IV. Generalization The gravity mode! relates the trade between any two countries to the sizes of their economies. Using the gravity model also reveals the strong e'ects of distance and international borders 7 even friendly borders like that between the United States and Canada in discouraging trade. International Trade is at record levels relative to the size of the world economy, thanks to falling costs of transportation and communications. However, trade has not grown in a straight line. The world was highly integrated in l9l4, but trade was greatly reduced by economic depression, protectionism, and war, and took decades to recover. Manufactured goods dominate modern trade today. In the past, however, primary products were much more important than they are now; recently, trade services has become increasingly important. Developing countries, in particular, have shifted from being mainly exporters of primary products to being mainly exporters of'manufactured goods. V Qllmmntiw: Auepumpnt