International Trade without CES: Estimating Translog Gravity

Dennis Novy

No 9125, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper derives a micro-founded gravity equation based on a translog demand system that allows for flexible substitution patterns across goods. In contrast to the standard CES-based gravity equation, translog gravity generates an endogenous trade cost elasticity. Trade is more sensitive to trade costs if the exporting country only provides a small share of the destination country's imports. As a result, trade costs have a heterogeneous impact across country pairs, with some trade flows predicted to be zero. I test the translog gravity equation and find empirical evidence that is in many ways consistent with its predictions.

Keywords: Distance; Gravity; Import share; Trade cost elasticity; Trade costs; Translog (search for similar items in EconPapers)
JEL-codes: F11 F12 F15 (search for similar items in EconPapers)
Date: 2012-09
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: International trade without CES: Estimating translog gravity (2013)
Working Paper: International trade without CES: estimating translog gravity (2013)
Working Paper: International Trade without CES: Estimating Translog Gravity (2012)
Working Paper: International Trade without CES: Estimating Translog Gravity (2010)
Working Paper: International Trade Without CES: Estimating Translog Gravity (2010)
Working Paper: International Trade without CES: Estimating Translog Gravity (2010)
Working Paper: International Trade without CES: Estimating Translog Gravity (2010)
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