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

A. Patrick Minford and Yongdeng Xu

No 12521, CEPR Discussion Papers from Centre for Economic Policy Research

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 comfortably, and that the Gravity model also passed it but at a rather lower level of probability, though as the test power was raised it was rejected. The two models' policy implications are similar.

Keywords: Bootstrap; indirect inference; Gravity model; Classical trade model; Uk trade (search for similar items in EconPapers)
JEL-codes: F10 F14 F16 F17 (search for similar items in EconPapers)
Date: 2017-12
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (5)

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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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