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Short Run Gravity

James Anderson () and Yoto Yotov

No 23458, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Short run gravity is a geometric weighted average of long run gravity and bilateral capacity. The model features (i) joint trade costs endogenous to bilateral volumes, (ii) long run gravity as a limiting case of efficient investment in bilateral capacities, (iii) a structural ratio of short run to long run trade elasticities equal to a micro-founded buyers' incidence elasticity, and (iv) tractable short and long run models of the extensive margin. Application to manufacturing trade of 52 countries during the globalization period 1988-2006 strongly supports the model. Results solve several time invariance and trade elasticity puzzles in the literature.

JEL-codes: F10 F14 F15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dcm and nep-int
Date: 2017-05
Note: ITI
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