The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade
A general equilibrium model of world trade with two differentiated-product industries and two factors is developed to illustrate how the gravity equation, including exporter and importer populations, as well as incomes, "fits in" with the Heckscher-Ohlin model of interindustry trade and the Helpman-Krugman-Markusen models of intraindustry trade. The study extends the microeconomic foundations for a generalized gravity equation in Bergstrand (1985) to incorporate relative factor-endowment differences and nonhomothetic tastes. Empirical estimates of this generalized gravity equation for single-digit Standard Industrial Trade Classification industry groups yield plausible inferences of their capital-labor intensities. Copyright 1989 by MIT Press.
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Volume (Year): 71 (1989)
Issue (Month): 1 (February)
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