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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 due to data limitations it is hard to measure them directly for a large number of countries over many years. To address this problem I derive a micro-founded measure of bilateral trade costs that indirectly infers trade frictions from observable trade data. I show that this trade cost measure is consistent with a broad range of leading trade theories including Ricardian and heterogeneous firms models. In an application 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

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1114.

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Date of creation: Jan 2012
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Handle: RePEc:cep:cepdps:dp1114

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: Trade Costs; Gravity; Multilateral Resistance; Ricardian Trade; HeterogeneousFirms;

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