Trade frictions and welfare in the gravity model: how much of the iceberg melts?
Abstract
A key element missing from the structural gravity literature is an examination of the implied general equilibrium. By design the gravity equation is adept at predicting bilateral trade flows. To make inferences beyond trade flows, however, the theoretic models should be consistent with other observables. Structural econometric estimates from Anderson and van Wincoop (2003) allow us to evaluate their proposed general equilibrium along several dimensions. We find that their gravity model predicts too large a difference between consumer and producer prices; excessive variation in the geographic distribution of consumer price indices; and an exceptionally large portion of output devoted to overcoming trade frictions. Under plausible parameterizations of the model at least 50% of output `melts' in transit.Download Info
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Bibliographic Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 39 (2006)
Issue (Month): 1 (February)
Pages: 247-265
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Keywords:Find related papers by JEL classification:
- F10 - International Economics - - Trade - - - General
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
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- Kyoji Fukao & Toshihiro Okubo, 2008.
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Hi-Stat Discussion Paper Series
d07-238, Institute of Economic Research, Hitotsubashi University.
- Fukao, Kyoji & Okubo, Toshihiro, 2011. "Why Has the Border Effect in the Japanese Machinery Sectors Declined?: The Role of Business Networks in East Asian Machinery Trade," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 26, pages 651-671.
- Kyoji Fukao & Toshihiro Okubo, 2011. "Why Has the Border Effect in the Japanese Machinery Sectors Declined? The Role of Business Networks in East Asian Machinery Trade," Global COE Hi-Stat Discussion Paper Series gd11-197, Institute of Economic Research, Hitotsubashi University.
- Kyoji Fukao & Toshihiro Okubo, 2011. "Why Has the Border Effect in the Japanese Machinery Sectors Declined? The role of business networks in East Asian machinery trade," Keio/Kyoto Joint Global COE Discussion Paper Series 2011-007, Keio/Kyoto Joint Global COE Program.
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Documents de travail du Centre d'Economie de la Sorbonne
bla08100, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
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NBER Working Papers
10480, National Bureau of Economic Research, Inc.
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"Assessing the impact of communication costs on international trade,"
Policy Research Working Paper Series
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