Unlocking New Methods to Estimate Country‐Specific Effects and Trade Elasticities With the Structural Gravity Model

2025/05/20 by Rebecca Freeman, Mario Larch, Angelos Theodorakopoulos +1 · 1 voice
Economics, Econometrics and Finance · #Global trade and economics #Fiscal Policy and Economic Growth #Economic Growth and Productivity

paper · pdf · doi:10.1002/jae.3133

openalex publication_date 2025/05/20 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/23

Abstract

ABSTRACT We propose new methods to identify the impact of country‐specific characteristics, policies, and trade costs on bilateral trade flows within the structural gravity framework. We complement theory with a simple two‐stage estimating procedure and offer proof of concept by quantifying the impact of country‐specific research and development (R&D) expenditure on trade. Our results suggest a positive relationship overall but a larger impact of R&D on international (versus domestic) trade. Importantly, our methods deliver trade elasticity estimates without the need for price or tariff data, and we highlight this feature by obtaining aggregate and sectoral trade elasticity estimates, including for services.

Citations

• The Dynamics of Productivity in the Telecommunications Equipment Industry
• The cluster bootstrap consistency in generalized estimating equations
• The Log of Gravity
• A Practitioner’s Guide to Cluster-Robust Inference
• Trade Costs

Discussions

• This work advances methods for estimating country-specific effects on trade and trade elasticities using the structural gravity framework. For the article & replication package👉 doi.org/10.1002/jae.. [bsky, 3 points, 0 comments]

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