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On Gravity, Specialization and Intra‐industry Trade

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  • E. Young Song

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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Suggested Citation

  • E. Young Song, 2011. "On Gravity, Specialization and Intra‐industry Trade," Review of International Economics, Wiley Blackwell, vol. 19(3), pages 494-508, August.
    • Handle: RePEc:bla:reviec:v:19:y:2011:i:3:p:494-508
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    References listed on IDEAS

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    1. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, January.
    2. David Hummels & James Levinsohn, 1995. "Monopolistic Competition and International Trade: Reconsidering the Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 799-836.
    3. Jean Imbs, 2004. "Trade, Finance, Specialization, and Synchronization," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 723-734, August.
    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.
    5. Nicita, Alessandro & Olarreaga, Marcelo, 2001. "Trade and production, 1976-99," Policy Research Working Paper Series 2701, The World Bank.
    6. Carolyn L. Evans, 2003. "The Economic Significance of National Border Effects," American Economic Review, American Economic Association, vol. 93(4), pages 1291-1312, September.
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    Cited by:

    1. Song, E. Young & Zhao , Chen, 2012. "Does Specialization Matter for Trade Imbalance at Industry Level?," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 16(3), pages 227-247, September.

    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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