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Gravity redux: measuring international trade costs with panel data

Listed author(s):
  • Dennis Novy

Barriers to international trade are known to be large but because of 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 between 1970 and 2000, with Mexico and Canada experiencing the biggest reductions.

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File URL: http://eprints.lse.ac.uk/59308/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 59308.

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Date of creation: Jan 2013
Publication status: Published in Economic Inquiry, January, 2013, 51(1), pp. 101-121. ISSN: 0095-2583
Handle: RePEc:ehl:lserod:59308
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