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A Survey on the Micro-Foundations of the Trade Gravity Equation

29 Pages Posted: 8 Jun 2011 Last revised: 3 Oct 2011

Fabien Candau

Université de Pau et des Pays de l'Adour

Elisa Dienesch

Université de Pau et des Pays de l'Adour

Date Written: June 7, 2011

Abstract

The aim of this paper is to review the state of art regarding the theoretical foundations of gravity equations applied to trade flows. Micro-foundations of the supply side and of the demand side are presented such as new models where a) general equilibrium constraints are taken into account b) heterogeneous firms are introduced b) non homothetic preferences and flexible demand are analysed. In surveying the most recent contributions, this paper sheds light on promising roads of research in particular regarding the lack of micro-foundations of trade costs.

Keywords: Trade resistance, Structural, gravity

JEL Classification: F12, F15

Suggested Citation

Candau, Fabien and Dienesch, Elisa, A Survey on the Micro-Foundations of the Trade Gravity Equation (June 7, 2011). Available at SSRN: https://ssrn.com/abstract=1859602 or http://dx.doi.org/10.2139/ssrn.1859602

Fabien Candau (Contact Author)

Université de Pau et des Pays de l'Adour ( email )

Avenue du Doyen Poplawski
64000 Pau
France

Elisa Dienesch

Université de Pau et des Pays de l'Adour ( email )

Avenue du Doyen Poplawski
64000 Pau
France

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