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Gravity at Sixty: The Workhorse Model of Trade

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  • Yoto V. Yotov

Abstract

On the eve of its 60th anniversary, the gravity model of trade is a ‘celebrity’, due to its intuitive appeal, solid theoretical foundations, and remarkable empirical success. Yet, many economists still view gravity simply as an intuitive but naive reduced-form estimating equation and apply it without guidance from theory, while others are skeptical about its usefulness for counterfactual projections. The objective of this paper is to offer a historical overview of its evolution from an a-theoretical application to an estimating computable general equilibrium (E-CGE) model, which can be nested in more complex frameworks. Along the way, I address some misconceptions about the gravity model, summarize the current best practices for gravity estimations, and highlight some properties that have made gravity so successful.

Suggested Citation

  • Yoto V. Yotov, 2022. "Gravity at Sixty: The Workhorse Model of Trade," CESifo Working Paper Series 9584, CESifo.
    • Handle: RePEc:ces:ceswps:_9584
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    2. Bagci, Kenan & Bakimli, Esat & Diallo, Abdouramane, 2022. "Impacts of Trade Facilitation and Logistics Performance on Trade Flows: The Case of Landlocked African OIC Countries (Burkina Faso, Chad, Mali, Niger and Uganda)," Conference papers 333447, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Frensch, Richard & Fidrmuc, Jarko & Rindler, Michael, 2023. "Topography, borders, and trade across Europe," Journal of Comparative Economics, Elsevier, vol. 51(3), pages 816-832.
    4. Adhikari, Shweta & Poudel, Dikshit & Gopinath, Munisamy, 2023. "Is Policy Greasing the Wheels of Global Palm Oil Trade?," Research on World Agricultural Economy, Nan Yang Academy of Sciences Pte Ltd (NASS), vol. 4(2), June.

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    More about this item

    Keywords

    structural gravity; evolution; theory; estimation general equilibrium;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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