Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/216556 
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8160
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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.
Subjects: 
bilateral trade balances
Brexit
elasticity of trade to distance
quantile regression
structural gravity and trade
subconvex demands
JEL: 
F17
F14
F10
Document Type: 
Working Paper
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