A Gravity Model: Maritime Transport Costs and Their Impact on Economy

Abstract

Due to transportation expenses, trade costs still protects its importance because no matter how companies try, they cannot zeroize their transportation cost. Maritime transportation is the most effective mode to move large quantities of cargo over long distances.1 That is why maritime most preferred transportation mode in international trade. The Gravity Model is a popular model in international trade theory. It named after Newton's "law of gravity." This model says that, trade between countries can be explained by their GDP sizes and transportation costs which are varied by the geographical distance between them. Turkey carries out approximately 70% of its foreign trade using maritime transport. In 2017, Turkey major trading partner countries for exports were Germany, United Kingdom, United Arab Emirates, Iraq and United States and for imports, they were China, Germany, Russian Federation, United States and Italy.2 Making use of these countries maritime transport costs, their GDP’s and their distances between each other, this study investigate the role of maritime freight costs and its effects on these countries economy by using gravity model.