Unlocking new methods to estimate country‐specific effects and trade elasticities with the structural gravity model

Rebecca Freeman, Mario Larch, Angelos Theodorakopoulos and Yoto Yotov

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We propose new methods to identify the impact of country‐specific characteristics, policies, and trade costs on bilateral trade flows within the structural gravity framework. We complement theory with a simple two‐stage estimating procedure and offer proof of concept by quantifying the impact of country‐specific research and development (R&D) expenditure on trade. Our results suggest a positive relationship overall but a larger impact of R&D on international (versus domestic) trade. Importantly, our methods deliver trade elasticity estimates without the need for price or tariff data, and we highlight this feature by obtaining aggregate and sectoral trade elasticity estimates, including for services.

Keywords: country-specific trade costs; elasticity of substitution; R&D and trade; services; structural gravity; trade elasticity (search for similar items in EconPapers)
JEL-codes: F10 F14 F16 (search for similar items in EconPapers)
Date: 2025-05-20
References: Add references at CitEc
Citations:

Published in Journal of Applied Econometrics, 20, May, 2025. ISSN: 0883-7252

Downloads: (external link)
http://eprints.lse.ac.uk/128233/ Open access version. (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:128233

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().