An Empirical Test for Linder Theory and Gravity Model of Trade

First, I tried to see how Newton’s gravitational equation, as it was transplanted into the field of International Trade by Jan Tinbergen (1962), can be time-honored by applying it to Nigerian bilateral trade pattern. For this purpose I collected the data for Nigerian bilateral trade with fifty four (54) countries, which account for more than 95% of its trade deals in the year 2013. I also adopted the OLS regression method of estimation. The result showed a strong support to the model, which says trade between is affected positively by the economic sizes and inversely by their respective distance. Second, the Linder theory was tested using a cross-country analysis between G7 countries plus Spain, Netherlands and Austria. I adopted the Gravity equation again for this purpose where we used the 2014 trade data for those countries. The dummy for EU-membership and Language similarity were included in the model to capture the effect of the economic distance, as suggested by Johansson and Westin (1994). The result is so robust and showed support for both Linder Theory and Gravity Model. Keywords: Gravity Model, Linder Theory, Trade, Nigeria, G7.