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The evolution of structural gravity: The workhorse model of trade

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  • Yoto V. Yotov

Abstract

The gravity model is the workhorse model of trade. Yet, many economists still view gravity as a reduced‐form estimating equation and apply it without guidance from theory, while others are skeptical about its usefulness for counterfactual projections. This paper offers a historical overview of the evolution of gravity, from an a‐theoretical application to an estimating computable general equilibrium model, which can be nested in more complex frameworks. Along the way, I address some misconceptions about gravity, summarize the current recommendations for gravity estimations, highlight properties that have made gravity so successful, and review the latest contributions to the related literature.

Suggested Citation

  • Yoto V. Yotov, 2024. "The evolution of structural gravity: The workhorse model of trade," Contemporary Economic Policy, Western Economic Association International, vol. 42(4), pages 578-603, October.
    • Handle: RePEc:bla:coecpo:v:42:y:2024:i:4:p:578-603
    DOI: 10.1111/coep.12666
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    3. Anderson, James E. & Yotov, Yoto V., 2020. "Short run gravity," Journal of International Economics, Elsevier, vol. 126(C).
    4. Yoto V. Yotov, 2022. "On the role of domestic trade flows for estimating the gravity model of trade," Contemporary Economic Policy, Western Economic Association International, vol. 40(3), pages 526-540, July.
    5. Piermartini, Roberta & Yotov, Yoto, 2016. "Estimating Trade Policy Effects with Structural Gravity," School of Economics Working Paper Series 2016-10, LeBow College of Business, Drexel University.
    6. Mario Larch & Yoto V. Yotov, 2016. "General Equilibrium Trade Policy Analysis with Structural Gravity," CESifo Working Paper Series 6020, CESifo.
    7. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    8. Heid, Benedikt & Stähler, Frank, 2024. "Structural gravity and the gains from trade under imperfect competition: Quantifying the effects of the European Single Market," Economic Modelling, Elsevier, vol. 131(C).
    9. Mario Larch & Yoto V. Yotov, 2024. "Estimating the effects of trade agreements: Lessons from 60 years of methods and data," The World Economy, Wiley Blackwell, vol. 47(5), pages 1771-1799, May.
    10. Mario Larch & Serge Shikher & Constantinos Syropoulos & Yoto V. Yotov, 2022. "Quantifying the impact of economic sanctions on international trade in the energy and mining sectors," Economic Inquiry, Western Economic Association International, vol. 60(3), pages 1038-1063, July.
    11. Anderson, James E. & Borchert, Ingo & Mattoo, Aaditya & Yotov, Yoto V., 2018. "Dark costs, missing data: Shedding some light on services trade," European Economic Review, Elsevier, vol. 105(C), pages 193-214.
    12. Yoto V. Yotov, 2021. "The Variation of Gravity within Countries (or 15 Reasons Why Gravity Should Be Estimated with Domestic Trade Flows)," CESifo Working Paper Series 9057, CESifo.
    13. Felbermayr, Gabriel & Yotov, Yoto V., 2021. "From theory to policy with gravitas: A solution to the mystery of the excess trade balances," European Economic Review, Elsevier, vol. 139(C).
    14. repec:hal:wpspec:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    15. repec:spo:wpecon:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    16. Adu, Raymond & Litsios, Ioannis & Baimbridge, Mark, 2022. "ECOWAS single currency: Prospective effects on trade," Journal of International Money and Finance, Elsevier, vol. 126(C).
    17. repec:hal:spmain:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    18. Zongo, Amara, 2021. "The impact of services trade restrictiveness on food trade," International Economics, Elsevier, vol. 166(C), pages 71-94.
    19. repec:spo:wpmain:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    20. Bergstrand, Jeffrey H. & Larch, Mario & Yotov, Yoto V., 2015. "Economic integration agreements, border effects, and distance elasticities in the gravity equation," European Economic Review, Elsevier, vol. 78(C), pages 307-327.
    21. Baier, Scott L. & Yotov, Yoto V. & Zylkin, Thomas, 2019. "On the widely differing effects of free trade agreements: Lessons from twenty years of trade integration," Journal of International Economics, Elsevier, vol. 116(C), pages 206-226.
    22. Lennard Welslau & Raquel Artecona & Daniel E. Perrotti, 2024. "Export competition between China and Latin America and the Caribbean in the United States market," The World Economy, Wiley Blackwell, vol. 47(7), pages 2947-2969, July.
    23. Mario Larch & Jeff Luckstead & Yoto V. Yotov, 2024. "Economic sanctions and agricultural trade," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(4), pages 1477-1517, August.
    24. Treb Allen & Costas Arkolakis & Yuta Takahashi, 2020. "Universal Gravity," Journal of Political Economy, University of Chicago Press, vol. 128(2), pages 393-433.

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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