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Gravity Redux: Measuring International Trade Costs With Panel Data

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  • DENNIS NOVY

Abstract

Barriers to international trade are known to be large. But have they become smaller over time? Building on the gravity framework by Anderson and van Wincoop (2003), I derive an analytical solution for time-varying multilateral resistance variables that can be related to observable trade data. This solution makes it possible to infer time-varying bilateral trade costs directly from the model's gravity equation without imposing arbitrary trade cost functions. As an illustration, I show that U.S. trade costs with major trading partners declined on average by about 40 percent between 1970 and 2000, with Mexico and Canada experiencing the biggest reductions.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 51 (2013)
Issue (Month): 1 (01)
Pages: 101-121

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Handle: RePEc:bla:ecinqu:v:51:y:2013:i:1:p:101-121

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