Gravity and Heterogeneous Trade Cost Elasticities

Natalie Chen and Dennis Novy

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: How do trade costs affect international trade? This paper offers a new approach. We rely on a flexible gravity equation that predicts variable trade cost elasticities, both across and within country pairs. We apply this framework to popular trade cost variables such as currency unions, trade agreements, and WTO membership. While we estimate that these variables are associated with increased bilateral trade on average, we find substantial heterogeneity. Consistent with the predictions of our framework, trade cost e¤ects are strong for ‘thin’ bilateral relationships characterised by small import shares, and weak or even zero for ‘thick’ relationships.

Keywords: Currency Unions; Euro; Gravity; Heterogeneity; RTA; Trade Costs; Trade Elasticity; Translog; WTO. JEL Classification: F14, F15, F33 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (5)

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https://warwick.ac.uk/fac/soc/economics/research/c ... tions/wp595.2021.pdf

Related works:
Journal Article: Gravity and Heterogeneous Trade Cost Elasticities (2022)
Working Paper: Gravity and heterogeneous trade cost elasticities (2022)
Working Paper: Gravity and Heterogeneous Trade Cost Elasticities (2021)
Working Paper: Gravity and Heterogeneous Trade Cost Elasticities (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:cge:wacage:595

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