GRAVITY MODELING: INTERNATIONAL TRADE AND R&D

In this paper, the issue of gravity modeling in international trade was investigated. Standard gravity equation augmented with other variables was used to control for transportation cost, whether trade partners are neighbors and whether country is landlocked, or countries’ participants in trade have had colonial history together. Also in this study’s model, we control whether traded commodities are homogenous, differentiated or high tech, and referenced. Variables denoting technology are TAI index, which stands for technological achievement index, and which are also used as variables for creation and diffusion of technology, as measured by the number of patents from the residents and royalty, and license fees’ receipts by the foreign citizens. The expected results show that trade is highly dependent on the exporters and importers’ levels of technology.