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Universal Gravity

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  • Treb Allen
  • Costas Arkolakis
  • Yuta Takahashi

Abstract

We study the theoretical properties and counterfactual predictions of a large class of general equilibrium trade and economic geography models. By combining aggregate factor supply and demand functions with market-clearing conditions, we prove that existence, uniqueness, and—given observed trade flows—the counterfactual predictions of any model within this class depend only on the demand and supply elasticities (“gravity constants”). Using a new “model-implied” instrumental variables approach, we estimate these gravity constants and use these estimates to compute the impact of a trade war between the United States and China.

Suggested Citation

  • Treb Allen & Costas Arkolakis & Yuta Takahashi, 2020. "Universal Gravity," Journal of Political Economy, University of Chicago Press, vol. 128(2), pages 393-433.
  • Handle: RePEc:ucp:jpolec:doi:10.1086/704385
    DOI: 10.1086/704385
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    References listed on IDEAS

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    Cited by:

    1. Egger, Peter H. & Nigai, Sergey, 2015. "Structural gravity with dummies only: Constrained ANOVA-type estimation of gravity models," Journal of International Economics, Elsevier, vol. 97(1), pages 86-99.
    2. Rodrigo Adao & Arnaud Costinot & Dave Donaldson, 2017. "Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade," American Economic Review, American Economic Association, vol. 107(3), pages 633-689, March.
    3. Pablo D Fajgelbaum & Eduardo Morales & Juan Carlos Suárez Serrato & Owen Zidar, 2019. "State Taxes and Spatial Misallocation," Review of Economic Studies, Oxford University Press, vol. 86(1), pages 333-376.
    4. Elisabeth Christen & Sandra Bilek-Steindl & Christian Glocker & Harald Oberhofer, 2017. "Österreich 2025 – Österreichs Wettbewerbsposition und Exportpotentiale auf ausgewählten Zukunftsmärkten," WIFO Monatsberichte (monthly reports), WIFO, vol. 90(1), pages 83-95, January.
    5. Ferdinando Monte & Stephen J. Redding & Esteban Rossi-Hansberg, 2018. "Commuting, Migration, and Local Employment Elasticities," American Economic Review, American Economic Association, vol. 108(12), pages 3855-3890, December.
    6. Barrot, Jean-No�l & Loualiche, Erik & Plosser, Matthew & Sauvagnat, Julien, 2017. "Import Competition and Household Debt," CEPR Discussion Papers 12098, C.E.P.R. Discussion Papers.
    7. Stephen J. Redding & Esteban Rossi-Hansberg, 2017. "Quantitative Spatial Economics," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 21-58, September.
    8. Peter Egger & Kevin Staub, 2016. "GLM estimation of trade gravity models with fixed effects," Empirical Economics, Springer, vol. 50(1), pages 137-175, February.
    9. Larch, Mario & Yotov, Yoto, 2016. "General Equilibrium Trade Policy Analysis with Structural Gravity," School of Economics Working Paper Series 2016-9, LeBow College of Business, Drexel University.
    10. Michel Fouquin & Jules Hugot, 2016. "Back to the Future: International Trade Costs and the Two Globalizations," Vniversitas Económica 015130, Universidad Javeriana - Bogotá.
    11. Pengfei Wang & Danyang Xie, 2018. "Trade, Sectorial Reallocation, and Growth," Annals of Economics and Finance, Society for AEF, vol. 19(1), pages 49-74, May.
    12. Larch, Mario & Yotov, Yoto, 2016. "General Equilibrium Trade Policy Analysis with Structural Gravity," School of Economics Working Paper Series 2016-9, LeBow College of Business, Drexel University.
    13. Konstantin Kucheryavyy & Gary Lyn & Andrés Rodríguez-Clare, 2016. "Grounded by Gravity: A Well-Behaved Trade Model with Industry-Level Economies of Scale," NBER Working Papers 22484, National Bureau of Economic Research, Inc.
    14. Peter H. Egger & Kevin E. Staub, 2016. "GLM estimation of trade gravity models with fixed effects," Empirical Economics, Springer, vol. 50(1), pages 137-175, February.
    15. Hakan Yilmazkuday, 2020. "Decomposing the Gains from Trade through the Standard Gravity Variables," Working Papers 2009, Florida International University, Department of Economics.
    16. Harald Oberhofer & Christian Glocker & Werner Hölzl & Peter Huber & Serguei Kaniovski & Klaus Nowotny & Michael Pfaffermayr & Monique Ebell & Nikolaos Kontogiannis, 2016. "Single Market Transmission Mechanisms Before, During and After the 2008-09 Crisis. A Quantitative Assessment," WIFO Studies, WIFO, number 59156, December.
    17. Ben Li & Penglong Zhang, 2016. "International Geopolitics," Boston College Working Papers in Economics 909, Boston College Department of Economics, revised 06 Feb 2017.
    18. Egger, Peter & Nigai, Sergey, 2015. "Structural Gravity with Dummies Only," CEPR Discussion Papers 10427, C.E.P.R. Discussion Papers.
    19. Natalia Ramondo, 2015. "Innovation and Production in the Global Economy," 2015 Meeting Papers 183, Society for Economic Dynamics.

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    JEL classification:

    • F1 - International Economics - - Trade

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