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Gravity in Transition

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Listed:
  • James E. Anderson
  • Yoto V. Yotov

Abstract

We propose a reduced‐form transitional gravity model and an accompanying flexible reduced‐form estimation approach. The Lucas–Prescott adjustment model is extended to allow for lag‐interval‐varying depreciation‐cum‐adjustment‐cost of bilateral trade capacities. The resulting lag‐interval‐varying trade elasticities vary from 0.4 in the short run to 4.8 in the long run. Long‐run equilibrium is reached in about 14–15 years. The model rationalizes trade elasticities that are less than one and offers a potential solution to the ‘international elasticity puzzle’–the discrepancy between trade elasticities from the trade and macro literatures. Theories of dynamic adjustment in trade costs are supported, and phasing‐in effects of FTAs are explained.

Suggested Citation

  • James E. Anderson & Yoto V. Yotov, 2025. "Gravity in Transition," Review of International Economics, Wiley Blackwell, vol. 33(3), pages 616-630, August.
    • Handle: RePEc:bla:reviec:v:33:y:2025:i:3:p:616-630
    DOI: 10.1111/roie.12799
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    References listed on IDEAS

    as
    1. Fontagné, Lionel & Martin, Philippe & Orefice, Gianluca, 2018. "The international elasticity puzzle is worse than you think," Journal of International Economics, Elsevier, vol. 115(C), pages 115-129.
    2. repec:spo:wpmain:info:hdl:2441/3lmdaefcr886ao8sahjmam30ke is not listed on IDEAS
    3. Peter H. Egger & Mario Larch & Yoto V. Yotov, 2022. "Gravity Estimations with Interval Data: Revisiting the Impact of Free Trade Agreements," Economica, London School of Economics and Political Science, vol. 89(353), pages 44-61, January.
    4. repec:hal:spmain:info:hdl:2441/3lmdaefcr886ao8sahjmam30ke is not listed on IDEAS
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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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