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Integrating gravity: the role of scale invariance in gravity models of spatial interactions and trade

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  • Arvis, Jean-François

Abstract

This paper revisits the ubiquitous bi-proportional gravity model and investigates the reasons why different theoretical frameworks may lead to the same empirical formula. The generic gravity equation possesses scale invariance symmetries that constrain possible theoretical explanations based on optimal allocation principles, such as neoclassical or probabilistic frameworks. These constraints imply that a representative consumer's utilities must be separable, and that an entropy model is the only consistent maximum likelihood allocation of a matrix of flows between origin and destination. The paper explores the feasibility of wider classes of non-scale invariant gravity equations, where gravity is no longer bi-proportional by including nonlinear interactions between trade costs and fundamental country factors such as economic size. It shows that such extensions are feasible but that they do not result in a significant improvement in the explanatory power of the empirical analysis.

Suggested Citation

  • Arvis, Jean-François, 2013. "Integrating gravity: the role of scale invariance in gravity models of spatial interactions and trade," Policy Research Working Paper Series 6347, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6347
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    References listed on IDEAS

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    1. Novy, Dennis, 2013. "International trade without CES: Estimating translog gravity," Journal of International Economics, Elsevier, vol. 89(2), pages 271-282.
    2. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    3. Dennis Novy, 2013. "Gravity Redux: Measuring International Trade Costs With Panel Data," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 101-121, January.
    4. John Roy & Jean-Claude Thill, 2003. "Spatial interaction modelling," Economics of Governance, Springer, vol. 83(1), pages 339-361, October.
    5. John Roy & Jean-Claude Thill, 2003. "Spatial interaction modelling," Papers in Regional Science, Springer;Regional Science Association International, vol. 83(1), pages 339-361, October.
    6. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    7. James E. Anderson, 2011. "The Gravity Model," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 133-160, September.
    8. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
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    More about this item

    Keywords

    Economic Theory&Research; Free Trade; Transport Economics Policy&Planning; Geographical Information Systems; Trade Law;

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