Gravity Model Final

8/4/2019 Gravity Model Final

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Economic Trade Analysis Tool(Gravity Model of Bilateral Trade)

Isaac A. Asiamah

Project Oriented Computer ScienceDowling College


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Presentation Breakdown

Aims & Objectives of Project Background Phases Tasks & Dependencies

User Externals System Design Input/Output Documentation

Future Objectives Q&A Acknowledgements


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Aims & Objectives of Project

The main objective of this project was to write an application based onthe gravity model of bilateral trade that will ease the process of analyzingthe flow of Trade between trading nations.

TARGET AUDIENCE

This tool is targeted towards an academic audience such as people whomight be doing graduate level work in economics and appliedmathematics .

We believe this tool ,with further polishing ,will be very useful mainly toeconomists who need access to analyzed Trade Flow informationbetween specific countries based on a wide variety of factors which are

within their choice .

This will allow the user to improve and better predict the volume of tradebetween specific countries by adding and removing several factors inorder to improve the Model.


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Background

The gravity equation is a popular formulation forstatistical analyses of bilateral flows between differentgeographical entities or regions.

It was adapted from Newtons law of gravitation.

In 1962 Jan Tinbergen proposed that roughly thesame functional form could be applied to international

trade flows. However, it has since been applied to awhole range of what we might call social interactionsincluding migration, tourism, and foreign directinvestment.


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Background

Newtons Law of Gravitation has an application interms of the flow of trade and Import/Export betweentwo countries

F = Gm1m2

r2F = The force of attractionm1 = mass of object 1m2 = mass of object 2r = the distance

G = is a constant.G is a gravitational constant depending on the units of

measurement for mass and force.


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Background

F = KGDPiGDPj

d

F = The Flow of TradeGDPi = GDP of country i

GDPj = GDP of country j

d = distance between economiccapitals of countries i and j.

K = is a constant.

F = Gm1m2

r2

F = The force of attractionm1 = mass of object 1

m2 = mass of object 2

r = the distance

G = is a constant.

The economics version can linearized and due to the additive nature ofLogarithms we convert it to the formulaLn(F) = ln(GDPi) + ln(GDPj) ln(d) +ln(k)


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Before we start .

While working on this project I realized most of my course mates had aproblem understanding what I was doing. And very recently I heard acomment like I dont even know what Bilateral means".

So I took these comments to heart and in order not to confuse anyone Iput a few terms and their definitions together to make this presentation a

little clearer.Some Keywords

Bilateral - pertaining to, involving, or affecting two or both sides, factions, parties

Model - Model (abstract), an abstraction or conceptual object used in thecreation of a predictive formula

Time invariant factors Factors that are not expected to change with time

Dummy variable - An extra variable we include in regression analysis toimprove the predictive output of the model by allowing us to include subgroupssuch male /female ,married /single etc.

Regression - examines the relation of a dependent variable (response variable)to specified independent variables (explanatory variables).


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Proposed Features /Functionality

I. Java based although originally started in java script

II. Calculate the flow of trade between two given countriesbased on factors such as

balance of trade

Gross Domestic Product(GDP) geographical location

Political regime and diplomatic ties

III. Must plot a chart to represent the calculated Trade flow dataover the number of years based on the users input

IV. The data must be analyzed using Regression in order topredict future trade patterns based on the users input.


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Phases

PHASE I:CODING:- Graphical User Interface- Data Analysis and Prediction Functions- Code to Link input and Output- Code to Polish Output

PHASE II:TESTING AND DEBUGGING:GUI related Testing and FixingCode functionality related FixesOutput and I/O link related fixes-Input-Error Handling

-OutputPHASE III:

DOCUMENTATION:- Help- Download Instructions


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Design Breakdown

The project was divided into the following phases in order to expedite the

completion. However ,from hindsight the project would have started

differently had I been aware of some of the dependencies.

Design Process Breakdown

1. Input - GUI

2. Data - IMF/World bank ,BEA,Dept of Commerce,Econstat

sourced data for import/export, balance of trade, and distances

3. Computation - implementing the algorithm & regression analysis

4. Output - Output Generation


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System Design

GUI

FLOW CHART OF SYSTEM DESIGN

DATA

CODE

OUTPUT


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DESIGNING THE GUI

The Graphical User Interface was designed using Net beans.


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FEATURES OF THE GUI

DROP DOWN MENUSTo allow selection of countries, years, and time invariantvariables from a list

CHECK BOXES:

To select options for time invariant variable effect on outputformat desired by the user.

BUTTONS:To compute Trade flow or Trade potential for a region or tocompute trade flow data for future analysis.

TEXTFIELDThere is one main text field labeled Output .Its main purpose is todisplay the computed data for trade flows and regression.


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DATA

Datasets Needed: Distances between capitals based on great circle method Real GDP values for countries Export/Import Data for countries Balance of Trade Data for countries

Distances were obtained from Raymond Robertson and Jon Haveman of Macalester CollegesEconomics Department.http://www.macalester.edu/research/economics/PAGE/HAVEMAN/Trade.ResourcesTradeData.ht

ml#Gravity US Economic data

U.S. Department of Commerce Bureau of Economic Analysis www.bea.gov

Non US Economic data

www.econstat.com
http://www.macalester.edu/research/economics/PAGE/HAVEMAN/Trade.ResourcesTradeData.htmlhttp://www.macalester.edu/research/economics/PAGE/HAVEMAN/Trade.ResourcesTradeData.htmlhttp://www.bea.gov/http://www.econstat.com/http://www.econstat.com/http://www.bea.gov/http://www.macalester.edu/research/economics/PAGE/HAVEMAN/Trade.ResourcesTradeData.htmlhttp://www.macalester.edu/research/economics/PAGE/HAVEMAN/Trade.ResourcesTradeData.html


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Code

The code was written in java and the GUI was also written usingNetbeans.

It Calculates the trade flow for each pair of selected countries based onthe GDP,balance of trade between trading partners ,and other factorssuch as distance, common borders, language and diplomatic ties.

A lot of good ideas on how to compute the trade flows was also learnedfrom some of the papers I read.

I also learned a lot on how to implement the regression analysis .Idecided to adopt the Java Matrix library .i.e. JAMA and used theincluded the regression code using JAMAs library.

I also wrote a little library of functions for performing calculations such asstandard deviation ,covariance ,variance etc.This is also included as partof the source folder


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Algorithm

case = 2 countries onlyvariable declaration:Fij Flow of Trade from i to j,

GDPi ,GDP of country i,

GDPj ,GDP of country j,

Balance of trade between country i and country j

Distance - proxy for time taken to travel from i to jZ Time Invariant factors causing -/+ bilateral effect

- common language -- value of either 1 or 0

- colonial links -- value of either 1 or 0

- tariffs -- value of either 1 or 0

eij the normal random error term.ln(Fij) = Bo +B1 ln(GDPi) + B2 ln(GDPj)- B3 ln(Distance)

+B4 (language) + eij

The Betas are the regression coefficients obtained after performing regression

analysis.


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Input /Output

In designing the I/O aspect of this program we tried as

much as possible to emphasize these three principles

and we will strive to stick to them as other advanced

versions of the program is released.

Simplicity

Ease of use

Clear, readable output


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Elements of Input

CountrySelectionexamples :

Ghana United States Nigeria China

This choice is based on the relative availabilityand ease of access to data for calculationsPerformed

Mode of InputThe four countries are selected from a combo-list, or drop downlist of countries.


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Elements of Input

Date Range SelectionThe selected range of dates is limited to years

between 1980 and 1990 due to the availability ofdata for those countries. Further expansions will be

made to this range of dates in future releases. Mode of Input

The range of years is input by selecting the desireddates from two combo lists of dates

The dates are selected from two lists from whichthe begin year chosen MUST be lower than the end

year chosen.


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Elements of Input

Time Invariant Variable Selection The dummy variables are selected by choosing

from a variable list. All dummy variables included will have to be

assigned an effect by the user in order to beconsidered as valid for input in the program.

Variable Effects This part has already been coded so the effect of a

time invariant variable is automatically updated

when a variable is selected.Positive effect = 1Negative effect = 0


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Elements of Input

Compute Trade Flow The user must click this button to compute the trade

flow values for the selected input It will be invalid to click this push button when no

values have been entered. Predict Trade Flow

The user must click this button to generate tradeflow predictions from the selected input

It will also be considered invalid input if the same

countries are clicked or the years are the samesince we dont have month to month data onbalance of trade.


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Elements of Output

GraphingThe graphing system employed by this program is used for both

the computations and predictions of the trade flow values given the

years specified.

The output can be displayed currently as a Line Graph

We hope we can extend the program to plot other types of charts in

the future .

The button Plot Graph just displays the ordinary line Graph with

actual trade flow values

The data analysis button also plots two line graphs which show the

actual and predicted values of the model along side each other.


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Elements of Output

Regression Output

When performing regression analysis the followingterms are displayed in the Output text field. Thesevalues and table can be saved and imported to be

used in other programs .

Standard error term

The residual values i.e.. Difference between

predicted and actual trade flow values in atable and also the

Correlation coefficients


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Documentation

The documentation for this project includes

System Design

User Manual

This presentation features- Readme

- User Manual :Step by Step guide to usingthis product.

This presentation will be available in the docs

Tab on blondie.dowling.edu and sourceforge.net


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User Manual - Readme

1. Go to Download Page and Download Current Version

2. Unzip package and save to a desired folder on your machine

NB: There isnt a gzipped version on blondie currently. It will be

uploaded soon .

3. Windows Users : Go to start -> Click Run ->Navigate to Directory

where you unzipped the package -> Type java jar GravModel.jar

Linux Users : Open a terminal -> Navigate to directory where youunzipped the package -> Type java jar GravModel.jar

4. The following visuals will show you how to use some of the current

features of the program.


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Step 1- Country Selection


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Step 2 Year Selection


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Step 4 Calculate Trade Flow


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Step 5 -- Saving Data


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Step 6 Graphical Output 1


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Step 8 -- Graphical Output 2


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Error Handling

Since this is the first public release its fairly pragmatic to assume

that this program is chocked full with logical errors .

So the debugging process never stops Im continually thinking of

new cases the program can crash and finding a way toHandle that error.

So far Ive come up with a few Input Errors and how theyre handled

in the problem.


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Invalid Country Selection


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Invalid Date Range Selection


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More on Error Handling

Youll receive these same error messages if

you attempt to perform regression analysis

with

An invalid combination of countries An invalid selection of years


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License

This product is released under the GNU Product

license .It is freely available to everyone to

download ,copy and revise.

Be Aware that all revisions that you make to thissoftware will also be affected by the GPLLicense and the subsequent products will

also be infected by the conditions of

the GPL.

F Obj i /O I


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Future Objectives /Open Issues

Adding functionality to extend prediction of future trade patterns,this would allow the user to generate values of 3,5 and 10 yearoutlook data for trade

I just started learning about Qt and since this current version iswritten in java ,I believe a more light weight Qt version will be agood idea

Extend the list of countries and integrate sql in order to store all

data for GDP,balance of trade etc in a database .


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Downloads

This project is available on two main web pagesi) Blondie @ http://blondie.dowling.edu/gravmod2/

ii) Source forge @ http://sourceforge.net/projects/gravmodeq/

If you want to join this project as a developer or have any helpful

suggestions and constructive criticisms you can forward all suchcorrespondence to [email protected]
http://blondie.dowling.edu/gravmod2/http://sourceforge.net/projects/gravmodeq/http://sourceforge.net/projects/gravmodeq/mailto:[email protected]:[email protected]://sourceforge.net/projects/gravmodeq/http://sourceforge.net/projects/gravmodeq/http://blondie.dowling.edu/gravmod2/


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Q&A

Any Questions or Comments ?


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References

1. Macalester College Department of Economics, Western Hemispheric Research.http://www.macalester.edu/research/economics/PAGE/HAVEMAN/Trade.Resources/Data/Gravity/dist.txt

2. Bureau of Economic Analysis, Department of Commerce. 2006. Current-dollar and real grossdomestic product. Washington, DC: BEA. March 30 http://www.bea.gov/bea/dn/gdplev.xls.

3. United States Census Bureau http://www.usatradeonline.gov/

4. Keith Head. Gravity for beginners. February 2003.

5. R.G Keesing. The history of Newton's apple tree, contemporaryphysics.November 1998.

6. Helga Kristjnsdttir. A gravity model for exports from iceland. 2005.

7. Population Potentials and Development Levels : Empirical Findings in the European Union byJ. Andres Fanaa,* and J. Lopez-Rodrguez

8. A SUR-EC-AR System Gravity Model of Trade by Jaya Krishnakumar9. The Java Matrix Package http://math.nist.gov/javanumerics/jama/

A k l d t
http://www.macalester.edu/research/economics/PAGE/HAVEMAN/Trade.Resources/Data/Gravity/dist.txthttp://www.macalester.edu/research/economics/PAGE/HAVEMAN/Trade.Resources/Data/Gravity/dist.txthttp://www.macalester.edu/research/economics/PAGE/HAVEMAN/Trade.Resources/Data/Gravity/dist.txthttp://www.bea.gov/bea/dn/gdplev.xls.http://www.usatradeonline.gov/http://www.usatradeonline.gov/http://www.bea.gov/bea/dn/gdplev.xls.http://www.macalester.edu/research/economics/PAGE/HAVEMAN/Trade.Resources/Data/Gravity/dist.txthttp://www.macalester.edu/research/economics/PAGE/HAVEMAN/Trade.Resources/Data/Gravity/dist.txt


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Acknowledgements

First of all Ill like to thank God for keeping mealive and giving me the strength and health tobring this phase of the project to completion.Prof. Bernstein for his Insight and his supervision

and guidance.My classmates Jon Ihm,Mike Fiero ,NikolayDarakev, Georgi Jones Darakev and Gregory

Mcquillan for their support and making it easierfor me to work with them although Im not a

computer science major.And lastly ,the Economics , Math and ComputerScience faculty

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Gravity Model Final

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