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Trade, Gravity, and Aggregation

Author

Listed:
  • Holger Breinlich

    (University of Surrey)

  • Dennis Novy

    (University of Warwick)

  • J. M. C. Santos Silva

    (University of Surrey)

Abstract

Gravity equations are an important tool in empirical international trade research. We study to what extent sector-level parameters can be recovered from aggregate gravity equations estimated via Poisson pseudo maximum likelihood. We show that in the leading case where trade cost regressors do not vary at the sector level, estimates obtained with aggregate data have a clear interpretation as a weighted average of sectoral elasticities. Otherwise the estimates are biased, but researchers may possibly infer the direction of the bias. We illustrate our results by revisiting Baier and Bergstrand’s (2007) influential study of the effects of free trade agreements.

Suggested Citation

  • Holger Breinlich & Dennis Novy & J. M. C. Santos Silva, 2024. "Trade, Gravity, and Aggregation," The Review of Economics and Statistics, MIT Press, vol. 106(5), pages 1418-1426, September.
    • Handle: RePEc:tpr:restat:v:106:y:2024:i:5:p:1418-1426
    DOI: 10.1162/rest_a_01234
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    References listed on IDEAS

    as
    1. Bas, Maria & Mayer, Thierry & Thoenig, Mathias, 2017. "From micro to macro: Demand, supply, and heterogeneity in the trade elasticity," Journal of International Economics, Elsevier, vol. 108(C), pages 1-19.
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    3. Pritchett, Lant & Sethi, Geeta, 1994. "Tariff Rates, Tariff Revenue, and Tariff Reform: Some New Facts," The World Bank Economic Review, World Bank, vol. 8(1), pages 1-16, January.
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    6. Redding, Stephen & Amiti, Mary & Weinstein, David, 2019. "The impact of the 2018 trade war on U.S. prices and welfare," LSE Research Online Documents on Economics 102619, London School of Economics and Political Science, LSE Library.
    7. J. M. C. Santos Silva & Silvana Tenreyro, 2015. "Trading Partners and Trading Volumes: Implementing the Helpman–Melitz–Rubinstein Model Empirically," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(1), pages 93-105, February.
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    11. Arthur Lewbel, 1992. "Aggregation with Log-Linear Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(3), pages 635-642.
    12. Alexander Kukush & Hans Schneeweis & Roland Wolf, 2004. "Three estimators for the poisson regression model with measurement errors," Statistical Papers, Springer, vol. 45(3), pages 351-368, July.
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    2. Yang, Xuebing, 2024. "Bulkiness of goods and the gravity of international trade: Differential impact of trade barriers," Research in Economics, Elsevier, vol. 78(4).

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    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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