Read the overview from DFAT on “Strengthening Trans-Tasman Economic Relations” and draw on the material we have discussed in class to answer the following questions.

a) Briefly describe how the ‘gravity model’ could be used to explain the volume of trade between Australia and New Zealand.

b) Using the Hecksher-Ohlin and Economies of Scale models of trade, would you expect Australia and New Zealand to engage in more inter- or intra-industry trade? Briefly explain why.

c) What are the main perceived benefits of the CER agreement between Australia and New Zealand?