Gravity Model for Trade between Singapore and Malaysia using Employment

Abstract

This paper uses GDP and employment data based on the Gravity Model to account for the trade volume between Singapore and Malaysia. There are two ways to operationalize this gravity model. One is based on GDP which is the current practice in the literature. But in this paper, we also use employment data. It is found that, to account for trade volume between Singapore and Malaysia, employment data performs better than the GDP data. Employment performs better than GDP because GDP is the result of trade but employment is an input to create trade volume.