Gravity and heterogeneous trade cost elasticities

Natalie Chen and Dennis Novy

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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 World Trade Organization 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 effects are strong for 'thin' bilateral relationships characterised by small import shares, and weak or even zero for 'thick' relationships.

JEL-codes: F14 F15 F33 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2022-05-01
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (3)

Published in Economic Journal, 1, May, 2022, 132(644), pp. 1349 - 1377. ISSN: 0013-0133

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http://eprints.lse.ac.uk/117630/ Open access version. (application/pdf)

Related works:
Journal Article: 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)
Working Paper: Gravity and Heterogeneous Trade Cost Elasticities (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:117630

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