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Estimating Gravity Equations: Theory Implications, Econometric Developments, and Practical Recommendations

Author

Listed:
  • Mario Larch

    (University of Bayreuth)

  • Serge Shikher

    (United States International Trade Commission)

  • Yoto Yotov

    (School of Economics, Drexel University)

Abstract

We trace the developments in the empirical trade literature to make fifteen recommendations for estimating gravity equations, which are structured in three categories: data, estimating equation, and heterogeneity. We also offer practical tips and identify areas where further research is needed. Based on these recommendations, we specify a comprehensive estimating model, which can serve as a benchmark for gravity estimations even when it is not possible to implement all of our recommendations. The proposed methods should be useful for gravity estimations beyond international trade, e.g., migration, foreign investment, cross-border patenting, and other flows.

Suggested Citation

  • Mario Larch & Serge Shikher & Yoto Yotov, 2025. "Estimating Gravity Equations: Theory Implications, Econometric Developments, and Practical Recommendations," Working Papers 2025001, Center for Global Policy Analysis, LeBow College of Business, Drexel University.
    • Handle: RePEc:drx:wpaper:2025001
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    References listed on IDEAS

    as
    1. Peter H. Egger & Mario Larch & Yoto V. Yotov, 2022. "Gravity Estimations with Interval Data: Revisiting the Impact of Free Trade Agreements," Economica, London School of Economics and Political Science, vol. 89(353), pages 44-61, January.
    2. Tamara Gurevitch & Peter R. Herman & Farid Toubal & Yoto Yotov, 2020. "One Nation, One Language? Domestic Language Diversity, Trade and Welfare," Working Papers 2020-15, CEPII research center.
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    13. Sebastien Bradley & Federico Carril-Caccia & Yoto V. Yotov, 2025. "Reassessing the Effects of Corporate Income Taxes on Mergers and Acquisitions Using Empirical Advances in the Gravity Literature," National Tax Journal, University of Chicago Press, vol. 78(4), pages 821-861.
    14. Hillberry, Russell & Hummels, David, 2013. "Trade Elasticity Parameters for a Computable General Equilibrium Model," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 1213-1269, Elsevier.
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    Cited by:

    1. Camarero, Mariam & Muñoz, Alejandro & Tamarit, Cecilio, 2025. "Unveiling the drivers of portfolio equity and bond investment in the European Union: The interplay of tax havens and gravity factors," European Economic Review, Elsevier, vol. 179(C).
    2. Bergstrand, Jeffrey H. & Clance, Matthew W. & Santos Silva, J.M.C., 2025. "The tails of gravity: Using expectiles to quantify the trade-margins effects of economic integration agreements," Journal of International Economics, Elsevier, vol. 157(C).
    3. Harald Oberhofer & Zhenyi Wang, 2025. "Everything You Always Wanted to Know About EU Membership Trade Effects But Were Afraid to Ask," Working Papers 202523, Center for Global Policy Analysis, LeBow College of Business, Drexel University.
    4. Clara Brandi & Federico Carri-Caccia, 2025. "Preventing pollution havens? Environmental Provisions in Preferential Trade Agreements and Foreign Direct Investment," Working Papers 202513, Center for Global Policy Analysis, LeBow College of Business, Drexel University.
    5. Sebastien Bradley & Javier Flórez & Mario Larch & Yoto Yotov, 2024. "The Granular Trade and Production Activities (GRANTPA) Database," School of Economics Working Paper Series 2024-1, LeBow College of Business, Drexel University.

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    Keywords

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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

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