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International trade without CES: Estimating translog gravity

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  • Novy, Dennis

Abstract

This paper derives a micro-founded gravity equation based on a translog demand system that allows for flexible substitution patterns across goods. In contrast to the standard CES-based gravity equation, translog gravity generates an endogenous trade cost elasticity. Trade is more sensitive to trade costs if the exporting country only provides a small share of the destination country's imports. As a result, trade costs have a heterogeneous impact across country pairs, with some trade flows predicted to be zero. I test the translog gravity equation and find empirical evidence that is in many ways consistent with its predictions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 89 (2013)
Issue (Month): 2 ()
Pages: 271-282

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Handle: RePEc:eee:inecon:v:89:y:2013:i:2:p:271-282

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Translog; Gravity; Trade costs; Distance; Trade cost elasticity; Import share;

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Citations

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Cited by:
  1. Peter Neary & Monika Mrazova, 2014. "Together at Last: Trade Costs, Demand Structure, and Welfare," Economics Series Working Papers 694, University of Oxford, Department of Economics.
  2. Meissner, Christopher M., 2014. "Growth from Globalization? A View from the Very Long Run," Handbook of Economic Growth, in: Handbook of Economic Growth, edition 1, volume 2, chapter 8, pages 1033-1069 Elsevier.
  3. Keith Head & Thierry Mayer, 2013. "What separates us? Sources of resistance to globalization," Canadian Journal of Economics, Canadian Economics Association, vol. 46(4), pages 1196-1231, November.
  4. Arvis, Jean-François, 2013. "Integrating gravity: the role of scale invariance in gravity models of spatial interactions and trade," Policy Research Working Paper Series 6347, The World Bank.
  5. Keith Head & Thierry Mayer, 2013. "Gravity Equations: Workhorse, Toolkit, and Cookbook," Sciences Po publications 2013-02, Sciences Po.
  6. Xiong, Bo & Chen, Sixia, 2012. "Estimating Gravity Equation Models in the Presence of Sample Selection and Heteroskedasticity," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124530, Agricultural and Applied Economics Association.
  7. Marc J. Melitz & Stephen J. Redding, 2013. "New Trade Models, New Welfare Implications," NBER Working Papers 18919, National Bureau of Economic Research, Inc.
  8. Peter Neary & Monika Mrazova, 2013. "Not so demanding: Preference structure, firm behavior, and welfare," Economics Series Working Papers 691, University of Oxford, Department of Economics.

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