Trade Costs, Trade Balances and Current Accounts: An Application of Gravity to Multilateral Trade
Abstract
In this paper we test the well-known hypothesis of Obstfeld and Rogoff (2000) that trade costs are the key to explaining the so-called Feldstein-Horioka puzzle. Using a gravity framework in an intertemporal context, we provide strong support for the hypothesis and we reconcile our results with the so-called home bias puzzle. Interestingly, this requires fundamental revision of Obstfeld and Rogoff’s argument. A further novelty of our work is in tying bilateral trade behaviour to desired aggregate trade balances and desired intertemporal trade.Download Info
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Bibliographic Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5137.Length:
Date of creation: Jul 2005
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Handle: RePEc:cpr:ceprdp:5137
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Related research
Keywords: current account; Feldstein-Horioka puzzle; gravity model; home bias; puzzle; trade balance; trade costs;Other versions of this item:
- Giorgio Fazio & Ronald MacDonald & Jacques Melitz, 2008. "Trade Costs, Trade Balances and Current Accounts: An Application of Gravity to Multilateral Trade," Open Economies Review, Springer, vol. 19(5), pages 557-578, November.
- Giorgio Fazio & Ronald MacDonald & Jacques Melitz, 2007. "Trade Costs, Trade Balances And Current Accounts: An Application Of Gravity To Multilateral Trade," Working Papers 2007_18, Business School - Economics, University of Glasgow.
- Giorgio Fazio & Ronald MacDonald & Jacques Melitz, 2005. "Trade Costs, Trade Balances and Current Accounts: An Application of Gravity to Multilateral Trade," CESifo Working Paper Series 1529, CESifo Group Munich.
- Giorgio Fazio & Ronald Mac Donald & Jacques Melitz, 2005. "Trade Costs, Trade Balances and Current Accounts : An Application of Gravity to Multilateral Trade," Working Papers 2005-12, Centre de Recherche en Economie et Statistique.
- F10 - International Economics - - Trade - - - General
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-08-13 (All new papers)
- NEP-INT-2005-08-13 (International Trade)
- NEP-SEA-2005-08-13 (South East Asia)
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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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