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Gravity with scale effects

James Anderson (), Mykyta Vesselovsky and Yoto Yotov

Journal of International Economics, 2016, vol. 100, issue C, 174-193

Abstract: This paper extends the structural gravity model to incorporate scale effects and exchange rate passthrough. Bilateral scale effects in cross-border trade are inferred from the difference in distance elasticities between cross border and inter-provincial bilateral trade in a majority of 28 goods and services sectors for Canada's provinces. Bilateral-specific relationship investment is a possible explanation. Incomplete passthrough of large exchange rate changes from 1997 to 2007, amplified by scale effects, produces direct effects on bilateral trade for 12 of 19 goods sectors but none of 9 services sectors.

Keywords: Gravity; Exchange rates; Goods and services (search for similar items in EconPapers)
JEL-codes: F14 F15 F16 (search for similar items in EconPapers)
Date: 2016
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