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Measuring Trade and Trade Potential: A Survey

Listed author(s):
  • Shiro Armstrong

This paper provides a survey and a brief critical review of the literature on the widely used gravity models of trade, as a prelude to the justification of its use with the stochastic frontier methodology. The important papers on the theoretical foundations of the gravity model are reviewed and related to papers applied to explain determinants of trade flows. Then some shortcomings of the gravity model are discussed. The paper introduces the stochastic frontier gravity model as a way of estimating trade resistances and overcoming some of the shortcomings of conventional gravity models in their use for that purpose.

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File URL: https://crawford.anu.edu.au/pdf/pep/apep-368.pdf
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Paper provided by Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University in its series Asia Pacific Economic Papers with number 368.

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Length: 26 pages
Date of creation: 2007
Handle: RePEc:csg:ajrcau:368
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Fax: (61-2) 6249 3941
Web page: https://crawford.anu.edu.au/research_units/ajrc/
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  1. Peter Drysdale & Xinpeng Xu, 2007. "Taiwan's Role in the Economic Architecture of East Asia and the Pacific," World Scientific Book Chapters,in: Economic Reform And Cross-Strait Relations Taiwan and China in the WTO, chapter 5, pages 149-185 World Scientific Publishing Co. Pte. Ltd..
  2. Baldwin, Richard & Taglioni, Daria, 2006. "Gravity for Dummies and Dummies for Gravity Equations," CEPR Discussion Papers 5850, C.E.P.R. Discussion Papers.
  3. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
  4. Andrew Rose, 2005. "Which International Institutions Promote International Trade?," Review of International Economics, Wiley Blackwell, vol. 13(4), pages 682-698, 09.
  5. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
  6. James Harrigan, 2001. "Specialization and the Volume of Trade: Do the Data Obey the Laws?," NBER Working Papers 8675, National Bureau of Economic Research, Inc.
  7. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-481, August.
  8. Drysdale, Peter & Garnaut, Ross, 1982. "Trade Intensities and the Analysis of Bilateral Trade Flows in a Many-Country World : A Survey," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 22(2), pages 62-84, February.
  9. Nilsson, Lars, 2000. "Trade integration and the EU economic membership criteria," European Journal of Political Economy, Elsevier, vol. 16(4), pages 807-827, November.
  10. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 49-63.
  11. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-623, June.
  12. Helpman, Elhanan, 1987. "Imperfect competition and international trade: Evidence from fourteen industrial countries," Journal of the Japanese and International Economies, Elsevier, vol. 1(1), pages 62-81, March.
  13. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
  14. Deardoff, A.V., 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," Working Papers 382, Research Seminar in International Economics, University of Michigan.
  15. K. Kalirajan, 1999. "Stochastic varying coefficients gravity model: An application in trade analysis," Journal of Applied Statistics, Taylor & Francis Journals, vol. 26(2), pages 185-193.
  16. Alan Deardorff, 1998. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Chapters,in: The Regionalization of the World Economy, pages 7-32 National Bureau of Economic Research, Inc.
  17. Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann D., 2003. "Augmented gravity model: An empirical application to Mercosur- European trade flows," International Trade 0309019, EconWPA.
  18. Peter Egger, 2002. "An Econometric View on the Estimation of Gravity Models and the Calculation of Trade Potentials," The World Economy, Wiley Blackwell, vol. 25(2), pages 297-312, 02.
  19. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
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