Gravity without Apologies: The Science of Elasticities, Distance, and Trade
Monika Mrazova () and
J. Peter Neary ()
No 14473, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Gravity as both fact and theory is one of the great success stories of the modern study of international trade, and has featured prominently in policy debates such as that over Brexit. We first review the facts, noting the overwhelming evidence that trade tends to fall with distance. We then introduce some expository tools for understanding CES theories of gravity as a simple general-equilibrium system. Next, we point out some anomalies with the theory, including implausible predictions for bilateral trade balances. Finally, we sketch an approach based on subconvex gravity as a promising direction to resolving them.
Keywords: Bilateral Trade Balances; Brexit; Elasticity of Trade to Distance; Quantile regression; Structural Gravity and Trade; Subconvex Demands (search for similar items in EconPapers)
JEL-codes: F10 F14 F17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int and nep-ore
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