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On Gravity,Specialization and Intra-industry Trade

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  • E. Young Song

    ()
    (Department of Economics, Sogang University)

Abstract

This paper derives the necessary and sufficient condition for the simple gravity equation to hold: the market share of an exporting country is constant across all importing countries. Specialization is just one example satisfying this condition. It holds in a variety of situations where multiple producers compete with a homogeneous good.Further, this paper shows that the ratio of bilateral trade to the product of partner incomes is increasing in the extent of specialization and in the intensity of intra-industry trade. Since the relationship is not model-specific, the correlations among these variables do not support any specific model.

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File URL: ftp://163.239.165.41/RePEc/sgo/wpaper/SEY_RIME_2010-07.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by Research Institute for Market Economy, Sogang University in its series Working Papers with number 1007.

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Length: 35 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:sgo:wpaper:1007

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Web page: http://home.sogang.ac.kr/sites/sgrime
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Related research

Keywords: gravity; specialization; intra-industry trade; Cournot; Heckscher-Ohlin;

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References

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  1. Carolyn L. Evans, 2003. "The Economic Significance of National Border Effects," American Economic Review, American Economic Association, vol. 93(4), pages 1291-1312, September.
  2. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  3. Nicita, Alessandro & Olarreaga, Marcelo, 2001. "Trade and production, 1976-99," Policy Research Working Paper Series 2701, The World Bank.
  4. Feenstra, Robert & Markusen, James R. & Rose, Andrew K, 1998. "Understanding the Home Market Effect and the Gravity Equation: The Role of Differentiating Goods," CEPR Discussion Papers 2035, C.E.P.R. Discussion Papers.
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Cited by:
  1. E. Yong Song & Chen Zhao, 2012. "Does Specialization Matter for Trade Imbalance at Industry Level?," Working Papers 1210, Research Institute for Market Economy, Sogang University.

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