On Theories Explaining the Success of the Gravity Equation

Simon Evenett and Wolfgang Keller

Working papers from Wisconsin Madison - Social Systems

Abstract: Examining the accuracy of the monopolistic competition theory's predictions for import volumes, we assess whether this theory accounts for the empirical success of the gravity equation. Since certain factor-endowment based theories have the same prediction for import volumes, we employ resampling techniques to address this model identification problem. We use extraneous information on the allocation of factor endowments in a given sample to identify which model is driving trade flows. We find that the accuracy of the monopolistic competition theory's prediction improves in samples where the factor endowment allocations generate a higher share of differentiated goods trade. By an analogous criterion, the Heckscher-Ohlin models make a much less accurate prediction. We conclude that the monopolistic competition theory is more likely to account for the gravity equation's success, especially in explaining trade among industrial nations.

Keywords: ECONOMETRICS; INTERNATIONAL ECONOMY (search for similar items in EconPapers)
JEL-codes: C14 F11 F12 (search for similar items in EconPapers)
Pages: 21 pages
Date: 1994
References: Add references at CitEc
Citations: View citations in EconPapers (37)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: On Theories Explaining the Success of the Gravity Equation (2002)
Working Paper: On Theories Explaining the Success of the Gravity Equation (1998)
Working Paper: On Theories Explaining the Success of the Gravity Equation (1998)
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:att:wimass:9713

Access Statistics for this paper

More papers in Working papers from Wisconsin Madison - Social Systems UNIVERSITY OF WISCONSIN MADISON, SOCIAL SYSTEMS RESEARCH INSTITUTE(S.S.R.I.), MADISON WISCONSIN 53706 U.S.A..
Bibliographic data for series maintained by Ailsenne Sumwalt ().