Potential bilateral trade between South Africa and Angola in the agricultural sector : a gravity model approach / J.L. Erero

This study applies the gravity trade model to assess South Africa-Angola trade potential in the agriculturalsector. A step-by-step example of the model's empirical implementation is also provided. It is found thatthe gravity model, with foundations in the physical sciences, is a useful instrument for the analysis ofbilateral trade flows. A panel data analysis is used to disentangle the time invariant country-specific effectsand to capture the relationships between the relevant variables over time. The study also finds that thefixed effects model is to be preferred to the random effects gravity model. Furthermore, a number ofvariables, namely, size of the economies, the oil price and exchange rates added to the standard gravityequation, are found to be important determinants of bilateral trade flows. Overall, the simulation resultsindicate that there is a potential for trade in the agricultural sector between these two countries.