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Gravity at Sixty: The Bijou of Trade

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  • Yotov, Yoto

    (Drexel University)

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 celebrate the anniversary of gravity by offering 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

  • Yotov, Yoto, 2022. "Gravity at Sixty: The Bijou of Trade," School of Economics Working Paper Series 2022-1, LeBow College of Business, Drexel University.
    • Handle: RePEc:ris:drxlwp:2022_001
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    More about this item

    Keywords

    Structural Gravity; Evolution; Theory; Estimation; General Equilibrium;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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