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A Perfect Specialization Model for Gravity Equation in Bilateral Trade based on Production Structure

Author

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  • Einian, Majid
  • Ravasan, Farshad

Abstract

Specialization models are important in providing a solid theoretical ground for gravity equation in bilateral trade. Some research papers try to improve specialization models by adding imperfect specialization to them, but we believe it is unnecessary complication. We provide a perfect specialization model based on the phenomenon that we call tradability, which overcomes the problems with simpler models. We provide empirical evidence using estimations on panel data of bilateral trade of 40 countries over 10 years that support the theoretical model.

Suggested Citation

  • Einian, Majid & Ravasan, Farshad, 2016. "A Perfect Specialization Model for Gravity Equation in Bilateral Trade based on Production Structure," MPRA Paper 72734, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:72734
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    File URL: https://mpra.ub.uni-muenchen.de/72734/1/MPRA_paper_72734.pdf
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    References listed on IDEAS

    as
    1. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 38(2), pages 112-134.
    2. Ricardo, David, 1821. "On the Principles of Political Economy and Taxation," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, edition 3, number ricardo1821.
    3. Simon J. Evenett & Wolfgang Keller, 2002. "On Theories Explaining the Success of the Gravity Equation," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 281-316, April.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    bilateral trade; gravity equation; perfect specialization; tradability;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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