Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/308376 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11480
Publisher: 
CESifo GmbH, Munich
Abstract: 
A large number of recent papers employ value-added trade data alongside traditional gross measures of trade to estimate the impact of various trade costs on bilateral trade. Value-added gravity equations are typically justified by referencing the theoretical and empirical merits of traditional gravity equations for gross trade. Contradicting this notion, we use theory and simulations to show that value-added gravity equations are misspecified when the gross trade gravity equation is correct. Consequently, estimates from value-added gravity equations are difficult to interpret and prone to omitted variables bias.
Subjects: 
structural gravity
trade in value added
JEL: 
F12
F15
Document Type: 
Working Paper
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