The Gravity Equation in International Trade

Michele Fratianni

No 2007-17, Working Papers from Indiana University, Kelley School of Business, Department of Business Economics and Public Policy

Abstract: This chapter offers a selective survey of the gravity equation (GE) in international trade. This equation started in the Sixties as a purely empirical proposition to explain bilateral trade flows, without little or no theoretical underpinnings. At the end of the Seventies, the GE was "legitimized" by a series of theoretical articles that demonstrated that the basic GE form was consistent with various models of trade flows. Empirical applications of GE expanded to cover a variety of issues, such as the impact of regional trade agreements, national borders and currency unions on trade, as well as the use of the equation to sort out the relative merit of alternative trade theories. A new wave of studies is now concentrating on the general equilibrium properties of the GE and finer econometrics points. The renewed interest of the academic profession in the development of the GE is undoubtedly driven by the equation’s empirical success.

Keywords: gravity equation; trade theories; borders; regional trade agreement; currency unions (search for similar items in EconPapers)
JEL-codes: E58 F15 F33 G15 (search for similar items in EconPapers)
Date: 2007-08
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (19)

Forthcoming in Handbook of International Business, 2nd Edition

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Working Paper: The Gravity Equation in International Trade (2007)
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