The Variation of Gravity within Countries

Yoto Yotov

No 2021-12, School of Economics Working Paper Series from LeBow College of Business, Drexel University

Abstract: The gravity equation is the workhorse model for analysis of bilateral trade flows. Despite solid theoretical foundations and clear gains from theory-consistent policy analysis, there are still gaps between gravity theory and empirics. This paper focuses on domestic trade flows, and I argue that there are significant benefits from adhering to theory by estimating gravity equations with domestic (in addition to international) trade flows. To this end, I review the contributions from the related literature and I synthesize them into fifteen arguments for using domestic trade flows in gravity estimations. The survey of the literature reveals the need for further theory contributions and new data developments, and points to opportunities for more empirical analysis and policy applications.

Keywords: Domestic Trade Flows; Structural Gravity; Trade Policy; Estimation (search for similar items in EconPapers)
JEL-codes: F13 F14 F16 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2021-04-25
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:drxlwp:2021_012

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