Gravity at Sixty: The Workhorse Model of Trade

Yoto Yotov

No 9584, CESifo Working Paper Series from CESifo

Abstract: On the eve of its 60th anniversary, 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 an intuitive but 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 its evolution 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 best practices for gravity estimations, and highlight some properties that have made gravity so successful.

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)
Date: 2022
New Economics Papers: this item is included in nep-his, nep-hpe and nep-int
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9584

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