The Gravity of Experience

47 Pages Posted: 20 Mar 2014 Last revised: 28 Oct 2020

See all articles by Pushan Dutt

Pushan Dutt

INSEAD - Economics and Political Sciences

Ana Maria Santacreu

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Daniel A. Traca

Nova School of Business and Economics

Date Written: October 27, 2020

Abstract

In this paper, we establish the importance of experience in international trade in reducing unmeasured trade costs and facilitating bilateral trade. We find a strong role for experience, measured in years of positive trade, for both aggregate and sectoral bilateral trade. In an augmented gravity framework, with a very comprehensive set of fixed-effects and trend variables, we find that a 1% increase in experience at the country-pair level increases bilateral exports by 0.417% and reduces trade costs by 0.105%. Non-parametric estimates imply that nine years of experience is equivalent to a country-pair joining a preferential trading area. We utilize multiple identification strategies, including difference-in-difference and instrumental variables. We show that experience matters more for country-pairs that are distant, non-contiguous, do not share a common language, lack colonial links, and legal ties to one another. Subsequently, we construct microfounded measures of trade costs and show how these decline with the accumulation of experience. Our results are consistent with experience reducing the bilateral unmeasured variable costs of trade and spillovers in experience across firms and industries.

Keywords: Gravity Model, Dark Trade Costs, Experience, Extensive and Intensive Margin

JEL Classification: F10, F14

Suggested Citation

Dutt, Pushan and Santacreu, Ana Maria Maria and Traca, Daniel A., The Gravity of Experience (October 27, 2020). INSEAD Working Paper No. 2020/52/EPS, Available at SSRN: https://ssrn.com/abstract=2411949 or http://dx.doi.org/10.2139/ssrn.2411949

Pushan Dutt (Contact Author)

INSEAD - Economics and Political Sciences ( email )

1 Ayer Rajah Avenue
Singapore, 138676
Singapore
65-6799-5498 (Phone)

HOME PAGE: http://faculty.insead.edu/pushan-dutt/

Ana Maria Maria Santacreu

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Daniel A. Traca

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
77
Abstract Views
766
rank
355,502
PlumX Metrics