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Gravity Redux: Measuring International Trade Costs With Panel Data

  • DENNIS NOVY

Barriers to international trade are known to be large but because of data limitations it is hard to measure them directly for a large number of countries over many years. To address this problem, I derive a micro-founded measure of bilateral trade costs that indirectly infers trade frictions from observable trade data. I show that this trade cost measure is consistent with a broad range of leading trade theories including Ricardian and heterogeneous firms models. In an application I show that U.S. trade costs with major trading partners declined on average by about 40 between 1970 and 2000, with Mexico and Canada experiencing the biggest reductions.

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File URL: http://hdl.handle.net/10.1111/j.1465-7295.2011.00439.x
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Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 51 (2013)
Issue (Month): 1 (01)
Pages: 101-121

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Handle: RePEc:bla:ecinqu:v:51:y:2013:i:1:p:101-121
DOI: j.1465-7295.2011.00439.x
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