Thursday, November 10, 2011

India - Pakistan Relations Assorted

Pakistani Foreign Minister Hina Rabbani on Indo-Pak relations
Pakistan, India, MFN: What are the implications? ;
In the intuition of economists, there is a gravity model in the affairs of men. Proximity and low transactions costs are incredibly important. The natural opportunity for India to grow international integration on all dimensions (goods, services, people, ideas, capital) lies in our immediate neighbourhood. India's connections into the region are shockingly below those seen for all other large countries. Doing better on connections with Pakistan would be a nice step forward.
For Discussion: Would the gravity model work when India is just too big for its neighbors unlike ASEAN?


The Gravity Model

Trade Frictions and Welfare in the Gravity Model
Gravity models are mathematical models based on an analogy with Newton s gravitational law and used to account for aggregate human behaviors related to spatial interaction such as migration and traffic flows. In regards to trade, the gravity model states that the volume of trade can be estimated as an increasing function of the national incomes of trading partners, and a decreasing function of the distance between them. Although the model’s ability to predict trade flows has been popular for several decades, it is often criticized for its lack of theoretical foundations. On August 6, 2002, Edward Balistreri presented his collaborative work with fellow International Trade Commission (ITC) economist, Russell Hillberry on an evaluation of the gravity model and its ability to replace traditional methods of welfare and policy analysis

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