Determinants of bilateral trade in manufacturing and services: A unified approach

Satya P. Das and Sant’Anna, Vinicios P.
Authors registered in the RePEc Author Service: Vinicios Poloni Sant'Anna

Economic Modelling, 2023, vol. 123, issue C

Abstract: This paper studies how and why the bilateral trades in manufacturing and services differ in their response to changes in the determinants—both theoretically and empirically. We build a unified theoretical framework that incorporates a demand bias toward services and a difference in the degree of national product differentiation between the two product groups. Estimation results support the theoretical predictions. The empirical model includes, among others, two non-standard trade-cost variables: a measure of internet penetration and virtual proximity (the number of bilateral hyperlinks). An important finding is that virtual proximity – thus far ignored in most gravity models – is a strong predictor of aggregate trade in both services and manufacturing. Also, physical distance is an important determinant of bilateral trade in manufacturing and services, even while controlling for virtual proximity.

Keywords: Trade in services; Trade in manufacturing; Gravity model; Nonhomotheticity; Product differentiation; Virtual proximity (search for similar items in EconPapers)
JEL-codes: D11 F12 F14 F19 L80 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:123:y:2023:i:c:s0264999323000585

DOI: 10.1016/j.econmod.2023.106246

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