Measuring Trade and Trade Potential: A Survey

Abstract

This paper provides a survey and a brief critical review of the literature on the widely used gravity models of trade, as a prelude to the justification of its use with the stochastic frontier methodology. The important papers on the theoretical foundations of the gravity model are reviewed and related to papers applied to explain determinants of trade flows. Then some shortcomings of the gravity model are discussed. The paper introduces the stochastic frontier gravity model as a way of estimating trade resistances and overcoming some of the shortcomings of conventional gravity models in their use for that purpose.