IDEAS home Printed from https://ideas.repec.org/p/drx/wpaper/2025004.html
   My bibliography  Save this paper

Gravity in Transition

Author

Listed:
  • James Anderson

    (Boston College)

  • Yoto Yotov

    (School of Economics, Drexel University)

Abstract

We propose a reduced-form transitional gravity model and an accompanying flexible reduced-form estimation approach. The Lucas-Prescott adjustment model is extended to allow for lag-interval-varying depreciation-cum-adjustment-cost of bilateral trade capacities. The resulting lag-interval-varying trade elasticities vary from 0.4 in the short run to 4.8 in the long run. Long-run equilibrium is reached in about 14-15 years. The model rationalizes trade elasticities that are less than one and offers a potential solution to the ‘international elasticity puzzle’ - the discrepancy between trade elasticities from the trade and macro literatures. Theories of dynamic adjustment in trade costs are supported, and phasing-in effects of FTAs are explained.

Suggested Citation

  • James Anderson & Yoto Yotov, 2025. "Gravity in Transition," Working Papers 2025004, Center for Global Policy Analysis, LeBow College of Business, Drexel University.
    • Handle: RePEc:drx:wpaper:2025004
    as

    Download full text from publisher

    File URL: https://www.lebow.drexel.edu/sites/default/files/2025-01/wp2025004-gravity-transition.pdf
    File Function: First version, 2025
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Fontagné, Lionel & Martin, Philippe & Orefice, Gianluca, 2018. "The international elasticity puzzle is worse than you think," Journal of International Economics, Elsevier, vol. 115(C), pages 115-129.
    2. repec:spo:wpmain:info:hdl:2441/3lmdaefcr886ao8sahjmam30ke is not listed on IDEAS
    3. 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.
    4. repec:hal:spmain:info:hdl:2441/3lmdaefcr886ao8sahjmam30ke is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Beniamino Quintieri & Giovanni Stamato, 2023. "Are preferential agreements beneficial to EU trade? New evidence from the EU–South Korea treaty," The World Economy, Wiley Blackwell, vol. 46(12), pages 3511-3541, December.
    2. Bruno Ducoudre & Nicolas Yol, 2018. "Evaluation de l'impact du CICE par une méthode," SciencePo Working papers Main hal-03471572, HAL.
    3. Oleg Itskhoki, 2021. "The Story of the Real Exchange Rate," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 423-455, August.
    4. Picard, Pierre M. & Worrall, Tim, 2020. "Currency areas and voluntary transfers," Journal of International Economics, Elsevier, vol. 127(C).
    5. Reinhard Ellwanger & Hinnerk Gnutzmann & Piotr Śpiewanowski, 2025. "Cost Pass‐Through in Commodity Markets With Capacity Constraints and International Linkages," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 40(2), pages 149-163, March.
    6. Agnès Bénassy‐Quéré & Matthieu Bussière & Pauline Wibaux, 2021. "Trade and currency weapons," Review of International Economics, Wiley Blackwell, vol. 29(3), pages 487-510, August.
    7. Swati Dhingra & Rebecca Freeman & Hanwei Huang, 2023. "The Impact of Non‐tariff Barriers on Trade and Welfare," Economica, London School of Economics and Political Science, vol. 90(357), pages 140-177, January.
    8. repec:hal:spmain:info:hdl:2441/2i4f6o6mbh8qvo20j61e6hip5s is not listed on IDEAS
    9. Bruno Ducoudre & Xavier Timbeau & Sébastien Villemot, 2018. "The magnitude of euro area misalignments in 2017," PSE Working Papers hal-03389334, HAL.
    10. Gabriel Felbermayr & Mario Larch & Erdal Yalcin & Yoto V. Yotov, 2024. "On the heterogeneous trade and welfare effects of GATT/WTO membership," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 160(3), pages 983-1008, August.
    11. Devasmita Jena & C. Akash & Prachi Gupta, 2024. "Deflecting economic sanctions: do trade and political alliances matter?," International Economics and Economic Policy, Springer, vol. 21(3), pages 543-567, July.
    12. Antoine Berthou & E. Dhyne, 2018. "Exchange Rate Movements, Firm-Level Exports and Heterogeneity," Working papers 660, Banque de France.
    13. Vanessa Alvariez & Michele Fioretti & Ayumu Ken Kikkawa & Monica Morlacco, 2022. "Two-Sided Market Power in Firm-to-Firm Trade," Working Papers hal-03795736, HAL.
    14. Harald Oberhofer & Zhenyi Wang, 2025. "Everything You Always Wanted to Know About EU Membership Trade Effects But Were Afraid to Ask," CESifo Working Paper Series 11823, CESifo.
    15. Kim, Dongin & Steinbach, Sandro & Zurita, Carlos, 2024. "Deep trade agreements and agri-food global value chain integration," Food Policy, Elsevier, vol. 127(C).
    16. Lampe, Markus & O’Rourke, Kevin Hjortshøj & Reiter, Lorenz & Yotov, Yoto V., 2025. "The Empire project: Trade policy in interwar Canada," Journal of International Economics, Elsevier, vol. 153(C).
    17. repec:spo:wpmain:info:hdl:2441/254n423ih78cnainj42ued3i28 is not listed on IDEAS
    18. Mahlkow, Hendrik & Wanner, Joschka, 2023. "The carbon footprint of global trade imbalances," W.E.P. - Würzburg Economic Papers 108, University of Würzburg, Department of Economics.
    19. repec:hal:spmain:info:hdl:2441/254n423ih78cnainj42ued3i28 is not listed on IDEAS
    20. Dussaux, Damien & Monjon, Stéphanie, 2023. "Selling under other skies when energy prices skyrocket: How do the companies adapt their export strategy when energy prices rise?," Energy Policy, Elsevier, vol. 183(C).
    21. Larch, Mario & Yotov, Yoto, 2022. "Deep Trade Agreements and FDI in Partial and General Equilibrium: A Structural Estimation Framework," School of Economics Working Paper Series 2022-7, LeBow College of Business, Drexel University.
    22. Elisabeth Christen & Gabriel Felbermayr & Hendrik Mahlkow & Joschka Wanner & Martin Mosler & Christoph A. Schaltegger, 2025. "Freihandel, anyone?. Effekte handelspolitischer Szenarien zwischen der Schweiz und den USA," WIFO Studies, WIFO, number 57956826, August.
    23. James E. Anderson & Yoto V. Yotov, 2022. "Estimating Gravity from the Short to the Long Run: A Simple Solution to the 'International Elasticity Puzzle'," NBER Working Papers 30809, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Short vs. Long Run; Gravity Estimation; Trade Elasticity;
    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:drx:wpaper:2025004. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Yoto V. Yotov (email available below). General contact details of provider: https://edirc.repec.org/data/cgdreus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.