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Gravity at Sixty: The Workhorse Model of Trade

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  • Yoto V. Yotov

Abstract

On the eve of its 60th anniversary, the gravity model of trade is a ‘celebrity’, due to its intuitive appeal, solid theoretical foundations, and remarkable empirical success. Yet, many economists still view gravity simply as an intuitive but naive reduced-form estimating equation and apply it without guidance from theory, while others are skeptical about its usefulness for counterfactual projections. The objective of this paper is to offer a historical overview of its evolution from an a-theoretical application to an estimating computable general equilibrium (E-CGE) model, which can be nested in more complex frameworks. Along the way, I address some misconceptions about the gravity model, summarize the current best practices for gravity estimations, and highlight some properties that have made gravity so successful.

Suggested Citation

  • Yoto V. Yotov, 2022. "Gravity at Sixty: The Workhorse Model of Trade," CESifo Working Paper Series 9584, CESifo.
    • Handle: RePEc:ces:ceswps:_9584
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    More about this item

    Keywords

    structural gravity; evolution; theory; estimation general equilibrium;
    All these keywords.

    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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