Classical or Gravity? Which trade model best matches the UK facts?

A. Patrick Minford and Yongdeng Xu

No E2017/10, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: We examine the empirical evidence bearing on whether UK trade is governed by a Classical model or by a Gravity model, using annual data from 1965 to 2015 and the method of Indirect Inference which has very large power in this application. The Gravity model here differs from the Classical model in assuming imperfect competition and a positive effect of total trade on productivity. We found that the Classical model passed the test rather easily, and that the Gravity model did so too but at a rather lower level of probability. As the gravity elements are strengthened the model's probability falls and vice versa. The two models' policy implications are also similar.

Keywords: Bootstrap; indirect inference; gravity model; classical trade model; UK trade (search for similar items in EconPapers)
Pages: 34 pages
Date: 2017-08
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Classical or Gravity? Which Trade Model Best Matches the UK Facts? (2018)
Working Paper: Classical or Gravity? Which trade model best matches the UK facts? (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:cdf:wpaper:2017/10

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