Gravity Redux: Measuring International Trade Costs with Panel Data

By D. Novy. Social Science Research Network, 2011

597 citations recorded by the source corpus.

Barriers to international trade are known to be large. But have they become smaller over time? Building on the gravity framework by Anderson and van Wincoop (2003), I derive an analytical solution for time-varying multilateral resistance variables that can be related to observable trade data. This solution makes it possible to infer time-varying bilateral trade costs directly from the model's gravity equation without imposing arbitrary trade cost functions. As an illustration, 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.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/eecede08f126ac6fde94bc5bdb947195e9d79436

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Citations in the corpus

Trade, Migration, and Productivity: A Quantitative Analysis of China (2019, methodology): “We estimate trade costs using a method developed in Head and Ries (2001), generalized by Novy (2013), and increasingly featured in international trade research.”
Trade Booms, Trade Busts, and Trade Costs (2011, background): “…(2008) estimates the ratio γ/(σ-1) to be near two, which suggests a 14 The intuition for the high correlation is that the increase in the (gross) production data is approximately matched by the increase in the (value-added) GDP data because the latter includes the growth of the services sector.”
Gravity, trade integration, and heterogeneity across industries (2011, background): “We exploit the fact that multilateral resistance is related to the amount of trade a country conducts with itself (see Novy, 2011).”
Measuring the cost of international trade in services (2013, methodology): “Starting from the standard, theory-consistent gravity model of Anderson and Van Wincoop (2003), Novy (2009) develops a comprehensive measure of bilateral trade costs.”
An Advanced Guide to Trade Policy Analysis: The Structural Gravity Model (2016, methodology): “The odds–ratio method (Head and Ries, 2001; Novy, 2013) consists of computing the ratio of international bilateral trade costs with respect to the intra-national trade costs between countries i and j :”
Economic Impacts of the Possible China–US Trade War (2018, background): “The non-cooperative Nash equilibrium is a solution to tariff war game which is formulated by Nash (1950).”
Trade Costs in the Developing World: 1996–2010 (2015, unknown): “9 Novy (2013) shows that some simple algebra makes it possible to eliminate the multilateral resistance terms from the gravity equations, and in so doing derive an expression for trade costs.”
The Extensive Margin of Exporting Products: A Firm-Level Analysis (2010, unknown): “Trade frictions such as market access costs are vital 40 Novy (2013) finds that the average total variable trade costs for a set of OECD countries in terms of tariff equivalents is 94 percent in 2000; the same countries have ad valorem tariff rates of approximately 4 percent (Anderson…”
Network quantile autoregression (2019, background): “…the adjacency matrix can be related to spatial distances between locations (or even economic distance such as a measure of trade flows, e.g., Novy (2013)), where the weight (i.e., aij) are usually assumed to be monotone decreasing with distance increasing (Cressie and Wikle, 2015; Lee,…”
Disentangling Demand-Enhancing and Trade-Cost Effects of Maximum Residue Regulations (2014, unknown): “See Novy (2013) for a recent study of global trade costs using a variant of the gravity model. world market for agricultural products.”
The costs and benefits of leaving the EU: trade effects (2017, background): “Many authors point out that such costs are higher than formal tariffs (LooiKee et al., 2009; Novy, 2013).”