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Gravity, Scale and Exchange Rates

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  • James E. Anderson
  • Mykyta Vesselovsky
  • Yoto V. Yotov

Abstract

We develop a structural gravity model that introduces scale effects in bilateral trade. Scale effects and incomplete passthrough give two channels through which exchange rates have real effects on trade patterns. Estimates from Canadian provincial trade data identify these effects through their interaction with the US border. We find statistically and quantitatively significant economies of scale in cross-border trade in almost 2/3 of sectors. Real effects of exchange rate changes on trade are found for 12 of 19 goods sectors and none of 9 services sectors.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18807.

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Date of creation: Feb 2013
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Handle: RePEc:nbr:nberwo:18807

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References

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  1. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
  2. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
  3. Rubinstein, Yona & Helpman, Elhanan & Melitz, Marc, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," Scholarly Articles 3228230, Harvard University Department of Economics.
  4. Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann, 2003. "Augmented Gravity Model: An Empirical Application to Mercosur-European Union Trade Flows," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 291-316, November.
  5. James E. Anderson & Yoto V. Yotov, 2008. "The Changing Incidence of Geography," Boston College Working Papers in Economics 698, Boston College Department of Economics.
  6. Pinelopi K. Goldberg & Michael M. Knetter, 1996. "Goods Prices and Exchange Rates: What Have We Learned?," NBER Working Papers 5862, National Bureau of Economic Research, Inc.
  7. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
  8. María Pía Olivero & Yoto V. Yotov, 2012. "Dynamic gravity: endogenous country size and asset accumulation," Canadian Journal of Economics, Canadian Economics Association, vol. 45(1), pages 64-92, February.
  9. Delatte, Anne-Laure & López-Villavicencio, Antonia, 2012. "Asymmetric exchange rate pass-through: Evidence from major countries," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 833-844.
  10. James E. Anderson, 2010. "The Gravity Model," NBER Working Papers 16576, National Bureau of Economic Research, Inc.
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Cited by:
  1. Agnosteva, Delina E. & Anderson, James E. & Yotov, Yoto, 2014. "Intra‐national Trade Costs: Measurement and Aggregation," School of Economics Working Paper Series 2014-2, LeBow College of Business, Drexel University.

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