Gross Domestic Product GDP

11 the trade quantity. Economic distance is an international border for the trade Melitz, 2006; Anderson, 2013. Conversely, the results from Meiri 2013 revealed that the high economic distance will increase the trade quantity. However, hypotheses concerning the economic in most of the previous research indicate a negative effect on the trade quantity. This occurs because high economic distance between exporting and importing countries will be offset by higher selling prices, further encouraging trade with exporting countries. Remoteness is a method that is frequently used to control the multilateral resistance terms for exporting and importing countries. This is frequently calculated as: Rem i = More specifically, remoteness is a formula that measures a country’s average weighted distance from its trading partners Head, 2003, where weights are the partner countries’ shares of world GDP denoted by GDP W . There are two criticisms that are usually made regarding the use of this procedure, first, that it is not theoretically correct because the only type of trade barrier that it evaluates is distance Anderson and van Wincoop, 2003. Second, is that it relates to the appropriate measure of internal distance, as the summation requires us to also specify also a country’s distance from itself Head and Mayer, 2000 in Bacchetta 2012, suggest using the square root of the country’s area multiplied by approximately 0.4. Baier and Bergstrand 2009 suggest estimating a linear approximation by means of a first order Taylor series expansion of the multilateral resistance terms, thus avoiding the non-linear procedure used in Anderson and van Wincoop 2003. Following this approach, the OLS reduced form gravity equation is: ��� = � + ����� + ����� − � − 1 � ln � − 1 2 � � ln � + � − 1 � ln � − 1 2 � � ln � where time indices have been omitted for simplicity purposes, θ denotes GDP shares and t indicates trade costs. The terms in square brackets are the linear approximation of the multilateral resistance terms MRTs. Intuitively, the first term in the bracket is a form of the remoteness term rather than only geographical distance, the term reflects overall trade costs; the second term is a measure of world trade costs. Most importantly, this linearization shows that bilateral trade between countries i and j depends on the level of bilateral trade relative to multilateral trade costs and multilateral trade relative to world trade costs. Note that Bergstrand and Baier estimate Equation 3.11 to proxy trade costs with distance and border and θ with 1N where N is the number of countries Bacchetta, 2012.