Gravity at Sixty: The Bijou of Trade

Yoto Yotov

No 2022-1, School of Economics Working Paper Series from LeBow College of Business, Drexel University

Abstract: On the eve of its 60th anniversary, the gravity model of trade is a `celebrity', due to its intuitive appeal, solid theoretical foundations, and remarkable empirical success. Yet, many economists still view gravity simply as an intuitive but naive reduced-form estimating equation and apply it without guidance from theory, while others are skeptical about its usefulness for counterfactual projections. The objective of this paper is to celebrate the anniversary of gravity by offering a historical overview of its evolution from an a-theoretical application to an estimating computable general equilibrium (E-CGE) model, which can be nested in more complex frameworks. Along the way, I address some misconceptions about the gravity model, summarize the current best practices for gravity estimations, and highlight some properties that have made gravity so successful

Keywords: Structural Gravity; Evolution; Theory; Estimation; General Equilibrium (search for similar items in EconPapers)
JEL-codes: F10 F14 F16 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2022-01-14
New Economics Papers: this item is included in nep-his, nep-hpe and nep-int
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:drxlwp:2022_001

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