Gravity Without Apology: The Science of Elasticities, Distance, and Trade

56 Pages Posted: 17 Mar 2020

See all articles by Céline Carrère

Céline Carrère

University of Geneva

Monika Mrazova

University of Geneva - Department of Economics

J. Peter Neary

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: 2020

Abstract

Gravity as both fact and theory is one of the great success stories of recent research on international trade, and has featured prominently in the policy debate over Brexit. We first review the facts, noting the overwhelming evidence that trade tends to fall with distance. We then introduce some expository tools for understanding CES theories of gravity as a simple general-equilibrium system. Next, we point out some anomalies with the theory: mounting evidence against constant trade elasticities, and implausible predictions for bilateral trade balances. Finally, we sketch an approach based on subconvex gravity as a promising direction to resolving them.

Keywords: bilateral trade balances, Brexit, elasticity of trade to distance, quantile regression, structural gravity and trade, subconvex demands

JEL Classification: F170, F140, F100

Suggested Citation

Carrère, Céline and Mrazova, Monika and Neary, J. Peter, Gravity Without Apology: The Science of Elasticities, Distance, and Trade (2020). CESifo Working Paper No. 8160, Available at SSRN: https://ssrn.com/abstract=3555587

Céline Carrère (Contact Author)

University of Geneva ( email )

102 Bd Carl-Vogt
Genève, CH - 1205
Switzerland

Monika Mrazova

University of Geneva - Department of Economics ( email )

102 Bd Carl Vogt
Geneva 4, 1211
Switzerland

J. Peter Neary

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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