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Gravity Redux: Measuring International Trade Costs with Panel Data

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  • Dennis Novy

Abstract

Barriers to international trade are known to be large but due to data limitations it is hard to measure them directly for a large number of countries over many years. To address this problem I derive a micro-founded measure of bilateral trade costs that indirectly infers trade frictions from observable trade data. I show that this trade cost measure is consistent with a broad range of leading trade theories including Ricardian and heterogeneous firms models. In an application I show that U.S. trade costs with major trading partners declined on average by about 40 percent between 1970 and 2000, with Mexico and Canada experiencing the biggest reductions.

Suggested Citation

  • Dennis Novy, 2011. "Gravity Redux: Measuring International Trade Costs with Panel Data," CESifo Working Paper Series 3616, CESifo.
  • Handle: RePEc:ces:ceswps:_3616
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    Cited by:

    1. Ignat Stepanok, 2016. "Creative destruction and unemployment in an open economy model," Canadian Journal of Economics, Canadian Economics Association, vol. 49(3), pages 931-948, August.
    2. Delina E. Agnosteva & James E. Anderson & Yoto V. Yotov, 2014. "Intra-national Trade Costs: Measurement and Aggregation," NBER Working Papers 19872, National Bureau of Economic Research, Inc.
    3. Laura Mayoral & Maria Dolores Gadea, 2009. "Analyzing aggregate real exchange rate persistence through the lens of sectoral data," UFAE and IAE Working Papers 787.09, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    4. Chen, Natalie & Novy, Dennis, 2012. "On the measurement of trade costs: direct vs. indirect approaches to quantifying standards and technical regulations," World Trade Review, Cambridge University Press, vol. 11(3), pages 401-414, July.
    5. Paul S. Segerstrom & Ignat Stepanok, 2018. "Learning How To Export," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(1), pages 63-92, January.
    6. Yann Duval & Chorthip Utoktham, 2011. "Intraregional Trade Costs in Asia: A Primer," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 18(2), pages 1-23, December.
    7. Simon J. Evenett, 2016. "Collateral damage: The harm done to Swiss commercial interests by EU policies since the crisis began," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 67(03), pages 69-89, December.
    8. Beltramo, Theresa, 2010. "Changes in Bilateral Trade Costs between European Union Member States & Major Trading Partners: An Empirical Analysis from 1989 - 2006," MPRA Paper 24259, University Library of Munich, Germany.
    9. Benjamin R. Mandel, 2012. "Why is the U.S. share of world merchandise exports shrinking?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 18(Feb).
    10. Sébastien Miroudot & Ben Shepherd, 2015. "Regional Trade Agreements and Trade Costs in Services," RSCAS Working Papers 2015/85, European University Institute.
    11. Trevor Tombe, 2012. "The Missing Food Problem," Working Papers tt0060, Wilfrid Laurier University, Department of Economics, revised 2012.
    12. Chen, Natalie & Novy, Dennis, 2011. "Gravity, trade integration, and heterogeneity across industries," Journal of International Economics, Elsevier, vol. 85(2), pages 206-221.

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    More about this item

    Keywords

    trade costs; gravity; multilateral resistance; Ricardian trade; heterogeneous firms;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration

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