Working Paper: NBER ID: w17835
Authors: James E. Anderson; Yoto V. Yotov
Abstract: This paper provides striking confirmation of the restrictions of the structural gravity model of trade. Structural forces predicted by theory explain 95% of the variation of the fixed effects used to control for them in the recent gravity literature, fixed effects that in principle could reflect other forces. This validation opens avenues to inferring unobserved sectoral activity and multilateral resistance variables by equating fixed effects with structural gravity counterparts. Our findings also provide important validation of a host of general equilibrium comparative static exercises based on the structural gravity model.
Keywords: No keywords provided
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Structural gravity forces (F12) | Variation in product-importer-time and product-exporter-time fixed effects (C23) |
| Structural gravity forces (F12) | Variance in estimated fixed effects across 18 manufacturing sectors and 76 countries (C51) |
| Use of fixed effects in gravity estimation (C23) | Mitigation of econometric problems related to exogeneity and omitted variables (C20) |
| Structural gravity model (R15) | Infer unobservable multilateral resistances and sales/expenditure variables (C51) |
| Structural gravity model predictions (R15) | Empirical estimates (C13) |