Gravity Chains: Estimating Bilateral Trade Flows When Parts and Components Trade is Important

By Richard E. Baldwin, Daria Taglioni. Social Science Research Network, 2011

181 citations recorded by the source corpus.

Trade is measured on a gross sales basis while GDP is measured on a net sales basis, i.e. value added. The rapid internationalisation of production in the last two decades has meant that gross trade flows are increasingly unrepresentative of the value added flows. This fact has important implications for the estimation of the gravity equation. We present empirical evidence that the standard gravity equation performs poorly by some measures when it is applied to bilateral flows where parts and components trade is important. We also provide a simple theoretical foundation for a modified gravity equation that is suited to explaining trade where international supply chains are important.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/a48ef43fa2cf94c1884e47641e8e3b81120beaec

Citations in the corpus

• Determinants of Global Value Chain Participation: Cross-Country Evidence (2020, unknown): “First, the paper relates to the empirical literature on the determinants of GVC participation (Baldwin and Taglioni 2012; Brooks and Ferrarini 2012; Noguera 2012; Blyde 2014; Cheng et al. 2015; Kowalski et al. 2015; United Nations 2015; Buelens and Tirpak 2017; Balié et al. 2019; Ignatenko, Raei,…”
• Fragmentation and Trade in Value Added Over Four Decades (2012, unknown): “12Among others, see Yeats (2001), Baldwin and Taglioni (2011), Behar and Freund (2011), and Orefice and Rocha (2011).”