The Evolution of Structural Gravity: The Workhorse Model of Trade

Yoto Yotov

No 2024-10, School of Economics Working Paper Series from LeBow College of Business, Drexel University

Abstract: The gravity model of trade is a ‘celebrity’, due to its intuitive appeal, solid theoretical foundations, and remarkable empirical success. Yet, many economists still view gravity simply as a naive reduced-form estimating equation and apply it without guidance from theory, while others are skeptical about its usefulness for counterfactual projections. The objective of this paper is to offer a historical overview of the evolution of the gravity model, from an a-theoretical application to an estimating computable general equilibrium (E-CGE) model, which can be nested in more complex frameworks. Along the way, I address some misconceptions about the gravity model, summarize the current recommendations for gravity estimations, highlight some properties that have made gravity so successful, and review the latest contributions to the related literature.

Keywords: Structural Gravity; Evolution; Theory; Estimation; General Equilibrium (search for similar items in EconPapers)
JEL-codes: F13 F14 F16 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2024-07-14
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Journal Article: The evolution of structural gravity: The workhorse model of trade (2024)
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