An Empirical Analysis of International Trade Flows Based on the Gravity Equation

The specifications of the Tinbergen gravity equation for international trade as applied to modern cross-sectional data on Russian trade with ten and twenty-five major trading partners for 2018 year are examined. Using numerical modeling and econometric estimation of the log-linear form with fixed effects, it is shown that Anderson's canonical specification adequately describes real trade flows. However, this specification has a problem with the parameter sigma-elasticity of substitution of goods of the pair-trading countries of the utility function CES used to derive the canonical equation (Anderson, J.E., and E. van Wincoop, 2003), which is set a priori. For different samples of trading partner countries, we obtained different values of this parameter, at which the model calculations corresponded best to the real data. And in this sense, in the following studies, it is worth paying attention to the Bergstrand specification (Jeffrey H. Bergstrand et al, 2013), in which the sigma parameter is estimated exactly by the Monte Carlo method.