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Trade, Gravity, and Aggregation

Author

Listed:
  • Holger Breinlich

    (University of Surrey)

  • Dennis Novy

    (University of Warwick)

  • J. M. C. Santos Silva

    (University of Surrey)

Abstract

Gravity equations are an important tool in empirical international trade research. We study to what extent sector-level parameters can be recovered from aggregate gravity equations estimated via Poisson pseudo maximum likelihood. We show that in the leading case where trade cost regressors do not vary at the sector level, estimates obtained with aggregate data have a clear interpretation as a weighted average of sectoral elasticities. Otherwise the estimates are biased, but researchers may possibly infer the direction of the bias. We illustrate our results by revisiting Baier and Bergstrand’s (2007) influential study of the effects of free trade agreements.

Suggested Citation

  • Holger Breinlich & Dennis Novy & J. M. C. Santos Silva, 2024. "Trade, Gravity, and Aggregation," The Review of Economics and Statistics, MIT Press, vol. 106(5), pages 1418-1426, September.
    • Handle: RePEc:tpr:restat:v:106:y:2024:i:5:p:1418-1426
    DOI: 10.1162/rest_a_01234
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    Citations

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    Cited by:

    1. Pablo Durán-Santomil & Luís Otero-González, 2022. "Capital Allocation Methods under Solvency II: A Comparative Analysis," Mathematics, MDPI, vol. 10(3), pages 1-14, January.
    2. Harald Oberhofer & Zhenyi Wang, 2025. "Everything You Always Wanted to Know About EU Membership Trade Effects But Were Afraid to Ask," CESifo Working Paper Series 11823, CESifo.
    3. Lucien Chaffa & Martin Trépanier & Thierry Warin, 2025. "Beyond PPML: Exploring Machine Learning Alternatives for Gravity Model Estimation in International Trade," CIRANO Working Papers 2025s-14, CIRANO.
    4. Yang, Xuebing, 2024. "Bulkiness of goods and the gravity of international trade: Differential impact of trade barriers," Research in Economics, Elsevier, vol. 78(4).

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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