On Gravity,Specialization and Intra-industry Trade
This paper derives the necessary and sufficient condition for the simple gravity equation to hold: the market share of an exporting country is constant across all importing countries. Specialization is just one example satisfying this condition. It holds in a variety of situations where multiple producers compete with a homogeneous good.Further, this paper shows that the ratio of bilateral trade to the product of partner incomes is increasing in the extent of specialization and in the intensity of intra-industry trade. Since the relationship is not model-specific, the correlations among these variables do not support any specific model.
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- Carolyn L. Evans, 2003. "The Economic Significance of National Border Effects," American Economic Review, American Economic Association, vol. 93(4), pages 1291-1312, September.
- Feenstra, Robert & Markusen, James R. & Rose, Andrew K, 1998.
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CEPR Discussion Papers
2035, C.E.P.R. Discussion Papers.
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- Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
- Nicita, Alessandro & Olarreaga, Marcelo, 2001. "Trade and production, 1976-99," Policy Research Working Paper Series 2701, The World Bank.
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