Gravity Redux: Measuring International Trade Costs with Panel Data

30 Pages Posted: 26 Oct 2011

See all articles by Dennis Novy

Dennis Novy

University of Warwick - Department of Economics; Centre for Economic Policy Research (CEPR); Centre for Economic Performance (CEP); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: October 25, 2011

Abstract

Barriers to international trade are known to be large but due to data limitations it is hard to measure them directly for a large number of countries over many years. To address this problem I derive a micro-founded measure of bilateral trade costs that indirectly infers trade frictions from observable trade data. I show that this trade cost measure is consistent with a broad range of leading trade theories including Ricardian and heterogeneous firms models. In an application I show that U.S. trade costs with major trading partners declined on average by about 40 percent between 1970 and 2000, with Mexico and Canada experiencing the biggest reductions.

Keywords: trade costs, gravity, multilateral resistance, Ricardian trade, heterogeneous firms

JEL Classification: F100, F150

Suggested Citation

Novy, Dennis, Gravity Redux: Measuring International Trade Costs with Panel Data (October 25, 2011). CESifo Working Paper Series No. 3616, Available at SSRN: https://ssrn.com/abstract=1949072 or http://dx.doi.org/10.2139/ssrn.1949072

Dennis Novy (Contact Author)

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
+44 (0) 2476150046 (Phone)

HOME PAGE: http://www2.warwick.ac.uk/fac/soc/economics/staff/faculty/novy/

Centre for Economic Policy Research (CEPR) ( email )

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Centre for Economic Performance (CEP) ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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