However, we found that rice is an inferior good where an increase in income leads to a decrease in consumption. The main idea behind the gravity model is that countries with larger economies tend to trade more, while distance represents an indicator of transportation costs and greater distance should lead to a reduction in bilateral trade. Indeed, Ariccia (1999) found that exchange rate volatility has a negative impact on international trade. Another article worth considering is Tenreyro (2004) who tests the effect of the nominal exchange rate on trade using the gravity model to explain the phenomenon. However, the author adds importer- and exporter-specific effects (s_i and s_j) to account for multilateral resistance and concludes that two countries that peg their currency to the same still experience a lower level of exchange rate fluctuation. Finally, Aristotelous (2001) tests exchange rate volatility and trade volume using the gravity model in the same context as Bergstrand (1989) with the dummy variable w_t equal to one in case of World War I and zero in case of World War II. world war and where D_1 is the managed floating exchange rate dummy which is equal to one when a managed floating regime is in place. The author believes that exchange rate volatility has no effect on Britain