Determining the Predictive Power of the Gravity Model: A Case for Zambia

Abstract

Purpose: The purpose of this study was to determine the predictive power of the gravity model in explaining trade flows in Zambia. Materials and Methods: The study utilized panel data for the period 1990-2020 for the Zambian economy and its 15 top trading partners based on 2018 trade volumes. The data was collected from the Centre for Prospective Studies and International Studies for International Information (CEPII) Gravity Database. The study employed the gravity equation to predict trade flows in Zambia. Findings: The empirical results show that the gravity model accurately predicts Zambia's trade flows, with GDP positively and distance negatively correlated with exports. The results also show that sharing a common border enhances Zambia’s exports. Surprisingly, trade agreements exhibit a negative relationship with exports. Implications to Theory, Practice and Policy: The significant negative impact of distance on trade highlights the need for improved infrastructure and logistics to reduce transportation costs, thus, facilitating Zambia’s trade flows. Further, the findings suggest that Zambia should focus on strengthening trade with neighboring countries. Additionally, Zambia should diversify export bases away from heavy reliance on the mining sector. Besides, there is a need for active participation in regional integration initiatives to address implementation challenges of trade agreements