Trade Specialization in the Gravity Model of International Trade

TRADE POLICY RESEARCH 2005, pp. 189-197, John M. Curtis and Dan Ciuriak, eds., Department of Foreign Affairs and International Trade, 2006

10 Pages Posted: 7 Feb 2010

See all articles by Dan Ciuriak

Dan Ciuriak

Ciuriak Consulting Inc.; Centre for International Governance Innovation (CIGI); C.D. Howe Institute; Asia Pacific Foundation of Canada; BKP Development Research & Consulting GmbH

Shinji Kinjo

Ministry of Economy, Trade and Industry (METI)

Date Written: 2006

Abstract

One criticism of the gravity model of international trade is that it takes no account of comparative advantage. This critique is particularly important when the gravity model is considered for policy applications such as identifying priority markets for trade promotion programs. For example, the potential for trade expansion might be greater with countries with complementary patterns of comparative advantage than those with similar patterns. We introduce a trade specialization variable into a gravity model to capture the degree of complementarity of trading partners' comparative advantage. This short paper describes the test of this thesis. Our general findings are as follows: The trade specialization index clearly distinguishes countries that are generally believed to be "most similar" from those that are believed to "most different." Its explanatory power in the gravity equation is good, comparing well with other established variables and it improves the overall goodness of fit of the gravity equation. It thus appears to be a useful addition to the gravity model toolkit. At the same time, it still leaves a large residual unexplained variation that weakens the gravity model's utility for some policy applications.

Keywords: Gravity model, comparative advantage, trade specialization index

JEL Classification: F14

Suggested Citation

Ciuriak, Dan and Kinjo, Shinji, Trade Specialization in the Gravity Model of International Trade (2006). TRADE POLICY RESEARCH 2005, pp. 189-197, John M. Curtis and Dan Ciuriak, eds., Department of Foreign Affairs and International Trade, 2006. Available at SSRN: https://ssrn.com/abstract=1549323

Dan Ciuriak (Contact Author)

Ciuriak Consulting Inc. ( email )

83 Stewart St.
Ottawa, Ontario K1N 6H9
Canada

Centre for International Governance Innovation (CIGI) ( email )

57 Erb Street West
Waterloo, Ontario N2L 6C2
Canada

C.D. Howe Institute ( email )

67 Yonge St., Suite 300
Toronto, Ontario M5E 1J8
Canada

Asia Pacific Foundation of Canada ( email )

Canada

HOME PAGE: http://ciuriakconsulting.com/

BKP Development Research & Consulting GmbH ( email )

Romanstrasse 74
M√ľnchen, 80639
Germany

Shinji Kinjo

Ministry of Economy, Trade and Industry (METI) ( email )

3-1 Kasumigaseki, 1 Chome
Chiyoda-ku
Tokyo, 100-8901
Japan

Register to save articles to
your library

Register

Paper statistics

Downloads
530
Abstract Views
2,425
rank
52,431
PlumX Metrics