Gold Standard Gravity

James Anderson and Yoto Yotov

No 795, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: This paper provides striking confirmation of the restrictions of the structural gravity model of trade. Structural forces predicted by theory explain 95% of the variation of the fixed effects used to control for them in the recent gravity literature, fixed effects that in principle could reflect other forces. This validation opens avenues to inferring unobserved sectoral activity and multilateral resistance variables by equating fixed effects with structural gravity counterparts. Our findings also provide important validation of a host of general equilibrium comparative static exercises based on the structural gravity model.

Keywords: Gravity; Trade; Structural Gravity; Multilateral Resistance (search for similar items in EconPapers)
JEL-codes: F10 F15 R10 R40 (search for similar items in EconPapers)
Date: 2012-01-30
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Citations: View citations in EconPapers (90)

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