Extended Gravity

Gloria Sheu, Andres Zahler and Eduardo Morales
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Eduardo Morales: Princeton University

No 1565, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: Exporting firms often enter foreign markets that are similar to previous export destinations. We develop a dynamic model in which a firm’s exports in each market may depend on how similar it is to its home country (gravity) and to its previous export destinations (extended gravity). Given the large number of export paths from which forward-looking firms may choose, we use a moment inequality approach to structurally estimate our model. We conclude that extended gravity reduces firms’ cost of foreign market entry by 27% to 40%.

Date: 2016
New Economics Papers: this item is included in nep-int
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Journal Article: Extended Gravity (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:1565

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