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Gravity, trade integration, and heterogeneity across industries

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  • Chen, Natalie
  • Novy, Dennis

Abstract

We derive a micro-founded measure of bilateral trade integration that is consistent with a broad range of leading gravity models. This measure accounts for cross-industry heterogeneity by incorporating substitution elasticities estimated at the industry level. We then use it to provide a theory-based ranking of trade integration across manufacturing industries in European Union countries. In addition, we explore the determinants of trade integration, finding that substantial Technical Barriers to Trade in certain industries as well as high transportation costs associated with heavy-weight goods are the most notable trade barriers.

Suggested Citation

  • Chen, Natalie & Novy, Dennis, 2011. "Gravity, trade integration, and heterogeneity across industries," Journal of International Economics, Elsevier, vol. 85(2), pages 206-221.
    • Handle: RePEc:eee:inecon:v:85:y:2011:i:2:p:206-221
    DOI: 10.1016/j.jinteco.2011.07.005
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    More about this item

    Keywords

    Trade integration; Gravity; Trade costs; Elasticity of substitution; Heterogeneity; European Union;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration

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