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The Gravity Equation in International Trade

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  • Michele Fratianni

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

Abstract

This chapter offers a selective survey of the gravity equation (GE) in international trade. This equation started in the Sixties as a purely empirical proposition to explain bilateral trade flows, without little or no theoretical underpinnings. At the end of the Seventies, the GE was "legitimized" by a series of theoretical articles that demonstrated that the basic GE form was consistent with various models of trade flows. Empirical applications of GE expanded to cover a variety of issues, such as the impact of regional trade agreements, national borders and currency unions on trade, as well as the use of the equation to sort out the relative merit of alternative trade theories. A new wave of studies is now concentrating on the general equilibrium properties of the GE and finer econometrics points. The renewed interest of the academic profession in the development of the GE is undoubtedly driven by the equation’s empirical success.

Suggested Citation

  • Michele Fratianni, 2007. "The Gravity Equation in International Trade," Working Papers 2007-17, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  • Handle: RePEc:iuk:wpaper:2007-17
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    Cited by:

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    2. Chang Hoon Oh & Michele Fratianni, 2010. "Do Additional Bilateral Investment Treaties Boost Foreign Direct Investments?," Mo.Fi.R. Working Papers 43, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    3. Oh, Chang Hoon & Travis Selmier, W. & Lien, Donald, 2011. "International trade, foreign direct investment, and transaction costs in languages," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(6), pages 732-735.
    4. Michele Fratianni & Francesco Marchionne, 2011. "The Limits to Integration," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume I, chapter 9, Edward Elgar Publishing.
    5. Campi, Mercedes & Dueñas, Marco, 2016. "Intellectual Property Rights and International Trade of Agricultural Products," World Development, Elsevier, vol. 80(C), pages 1-18.
    6. Jaume Roselló Nadal & María Santana Gallego, 2012. "Climate change and global international tourism: An evaluation for different scenarios," DEA Working Papers 52, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    7. Beata Bierut & Piotr Dybka, 2019. "Institutional determinants of export competitiveness among the EU countries: evidence from Bayesian model averaging," NBP Working Papers 306, Narodowy Bank Polski, Economic Research Department.
    8. Michele Fratianni & Francesco Marchionne, 2012. "Trade Costs and Economic Development," Economic Geography, Clark University, vol. 88(2), pages 137-163, April.
    9. Marco Dueñas & Giorgio Fagiolo, 2013. "Modeling the International-Trade Network: a gravity approach," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 8(1), pages 155-178, April.
    10. Giorgio Fagiolo, 2010. "The international-trade network: gravity equations and topological properties," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 5(1), pages 1-25, June.
    11. Aggarwal, Raj & Kearney, Colm & Lucey, Brian, 2012. "Gravity and culture in foreign portfolio investment," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 525-538.
    12. Martin Falk, 2012. "Determinants of Greenfield Investment in Knowledge Intensive Business Services," FIW Research Reports series IV-002, FIW.
    13. Luca RICCETTI, 2011. "A Copula-GARCH Model for Macro Asset Allocation of a Portfolio with Commodities: an Out-of-Sample Analysis," Working Papers 355, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    14. Burgoa, Rodrigo, 2011. "Consecuencias económicas del enclaustramiento marítimo sobre las exportaciones bolivianas [Landlockedness Economic Impact upon Bolivian Exports]," MPRA Paper 59904, University Library of Munich, Germany.
    15. Lien, Donald & Lo, Melody, 2017. "Economic impacts of cultural institutes," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 12-21.
    16. Francesco Marchionne & Evelina Lazareva, 2019. "The limits to integration before and after the great financial crisis," Economics Bulletin, AccessEcon, vol. 39(2), pages 838-844.
    17. Luca RICCETTI, 2010. "Minimum Tracking Error Volatility," Working Papers 340, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    18. Ugo FRATESI, 2010. "The National and International Effects;of Regional Policy Choices: Agglomeration Economies, Peripherality and Territorial Characteristics," Working Papers 344, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    19. Johan Fourie & María Santana-Gallego, 2013. "The determinants of African tourism," Development Southern Africa, Taylor & Francis Journals, vol. 30(3), pages 347-366, September.
    20. Fabio FIORILLO & Agnese SACCHI, 2010. "I Want to Free-ride. An Opportunistic View on Decentralization Versus Centralization Problem," Working Papers 346, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    21. Fourie, Johan & Santana-Gallego, María, 2011. "The impact of mega-sport events on tourist arrivals," Tourism Management, Elsevier, vol. 32(6), pages 1364-1370.
    22. Subhani, Muhammad Imtiaz, 2009. "Bilateral trade: a study on SAARC countries," MPRA Paper 36158, University Library of Munich, Germany.
    23. Shehata, Emad Abd Elmessih, 2011. "الآثار الإقتصادية للتجارة الخارجية بين مصر والكوميسا بإستخدام نموذج الجاذبية للتحليل المكانى [Economic Impact for Trade Between Egypt and COMESA By Using Gravity Model of Spatial Analysis]," MPRA Paper 43395, University Library of Munich, Germany, revised Dec 2011.
    24. Selmier, W. Travis & Oh, Chang Hoon, 2012. "International business complexity and the internationalization of languages," Business Horizons, Elsevier, vol. 55(2), pages 189-200.

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    More about this item

    Keywords

    gravity equation; trade theories; borders; regional trade agreement; currency unions;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F15 - International Economics - - Trade - - - Economic Integration
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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