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

57 Pages Posted: 25 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: March 2020

Abstract

Gravity as both fact and theory is one of the great success stories of the modern study of international trade, and has featured prominently in policy debates such as that 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, including 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: F10, F14, F17

Suggested Citation

Carrère, Céline and Mrazova, Monika and Neary, J. Peter, Gravity Without Apologies: The Science of Elasticities, Distance, and Trade (March 2020). CEPR Discussion Paper No. DP14473, Available at SSRN: https://ssrn.com/abstract=3560280

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1
Abstract Views
126
PlumX Metrics