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GRAVITY REDUX: MEASURING INTERNATIONAL TRADE COSTS WITH PANEL DATA
Author(s) -
NOVY DENNIS
Publication year - 2013
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.2011.00439.x
Subject(s) - economics , redux , measure (data warehouse) , panel data , gravity model of trade , trade barrier , bilateral trade , international economics , international trade , gravity equation , econometrics , computer science , geography , archaeology , database , china , engineering , aerospace engineering
Barriers to international trade are known to be large but because of data limitations it is hard to measure them directly for a large number of countries over many years. To address this problem, I derive a micro‐founded measure of bilateral trade costs that indirectly infers trade frictions from observable trade data. I show that this trade cost measure is consistent with a broad range of leading trade theories including Ricardian and heterogeneous firms models. In an application I show that U.S. trade costs with major trading partners declined on average by about 40 between 1970 and 2000, with Mexico and Canada experiencing the biggest reductions . ( JEL F10, F15)