Gravity with Scale Economies

James Anderson, Mykyta Vesselovsky () and Yoto Yotov
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Mykyta Vesselovsky: Department of Foreign Affairs and International Trade, Postal: Department of Foreign Affairs and International Trade Ottawa, ON, Canada K1A OG2

No 2014-4, School of Economics Working Paper Series from LeBow College of Business, Drexel University

Abstract: We extend the structural gravity model to identify external economies or diseconomies of scale elasticities of cross-border trade. We find statistically and quantitatively significant economies of scale in cross-border trade in 5/8ths of sector-direction cases for Canadian provinces while the remaining 3/8ths of cases have constant returns to scale. Incomplete passthrough of large exchange rate changes at two year intervals from 1997 to 2007 is amplified by scale economies to produce direct effects on bilateral trade for 12 of 19 goods sectors but none of 9 services sectors.

Keywords: Gravity; Scale Effects; Exchange Rates; Goods and Services (search for similar items in EconPapers)
JEL-codes: F14 F15 F16 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2014-02-24
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:drxlwp:2014_004

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