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Short Run Gravity

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  • James E. Anderson
  • Yoto V. Yotov

Abstract

Short run gravity is a geometric weighted average of long run gravity and bilateral capacity. The model features (i) joint trade costs endogenous to bilateral volumes, (ii) long run gravity as a limiting case of efficient investment in bilateral capacities, (iii) a structural ratio of short run to long run trade elasticities equal to a micro-founded buyers' incidence elasticity, and (iv) tractable short and long run models of the extensive margin. Application to manufacturing trade of 52 countries during the globalization period 1988-2006 strongly supports the model. Results solve several time invariance and trade elasticity puzzles in the literature.

Suggested Citation

  • James E. Anderson & Yoto V. Yotov, 2017. "Short Run Gravity," NBER Working Papers 23458, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23458
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    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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