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The Gravity of Experience

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In this paper, we establish the importance of experience in international trade in reducing unmeasured trade costs and facilitating bilateral trade. We find a strong role for experience, measured in years of positive trade, for both aggregate and sectoral bilateral trade. In an augmented gravity framework, with a very comprehensive set of fixed-effects and trend variables, we find that a 1% increase in experience at the country-pair level increases bilateral exports by 0.417% and reduces trade costs by 0.105%. Non-parametric estimates imply that nine years of experience is equivalent to a country-pair joining a preferential trading area. We utilize multiple identification strategies, including difference-in-difference and instrumental variables. We show that experience matters more for country-pairs that are distant, non-contiguous, do not share a common language, lack colonial links, and legal ties to one another. Subsequently, we construct microfounded measures of trade costs and show how these decline with the accumulation of experience. Our results are consistent with experience reducing the bilateral unmeasured variable costs of trade and spillovers in experience across firms and industries.

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  • Pushan Dutt & Ana Maria Santacreu & Daniel A. Traca, 2014. "The Gravity of Experience," Working Papers 2014-041, Federal Reserve Bank of St. Louis, revised Oct 2020.
  • Handle: RePEc:fip:fedlwp:2014-041
    DOI: 10.20955/wp.2014.041
    Note: Publisher DOI: https://doi.org/10.1111/caje.12583
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    Cited by:

    1. Innwon Park & Soonchan Park, 2017. "Formation of interdependent regional trade agreements and production networks," The World Economy, Wiley Blackwell, vol. 40(10), pages 2032-2055, October.
    2. Céline CARRERE & Vanessa STRAUSS-KAHN, 2014. "Developing Countries Exports Survival in the OECD: Does Experience Matter?," Working Papers P100, FERDI.
    3. Mario Larch & Joschka Wanner & Yoto V. Yotov & Thomas Zylkin, 2017. "The Currency Union Effect: A PPML Re-assessment with High-Dimensional Fixed Effects," CESifo Working Paper Series 6464, CESifo.
    4. Yavuz Arslan & Juan Contreras & Nikhil Patel & Chang Shu, 2018. "Globalisation and deglobalisation in emerging market economies: facts and trends," BIS Papers chapters, in: Bank for International Settlements (ed.), Globalisation and deglobalisation, volume 100, pages 1-25, Bank for International Settlements.
    5. Bastos, Paulo & Silva, Joana, 2012. "Networks, firms, and trade," Journal of International Economics, Elsevier, vol. 87(2), pages 352-364.
    6. Céline Carrère & Vanessa Strauss-Kahn, 2017. "Export survival and the dynamics of experience," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(2), pages 271-300, May.

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    More about this item

    Keywords

    Gravity model; Dark trade costs; Experience; extensive and intensive margins;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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