IDEAS home Printed from https://ideas.repec.org/p/bon/boncrc/crctr224_2020_236v2.html
   My bibliography  Save this paper

Gravity With Granularity

Author

Listed:
  • Holger Breinich
  • Harald Fadinger
  • Volker Nocke
  • Nicolas Schutz

Abstract

We demonstrate that the estimation of gravity equations of trade flows suffers from an omitted variable bias when firms are granular and behave oligopolistically. We show how to correct for this bias in the estimation of both firm- and industry-level gravity. Using French and Chinese export data, we find that the oligopoly bias leads to a substantial underestimation of the effects of distance on trade flows. In a calibrated version of the model, the welfare gains from a trade liberalization are found to be almost twice as large under oligopoly as under monopolistic competition.

Suggested Citation

  • Holger Breinich & Harald Fadinger & Volker Nocke & Nicolas Schutz, 2020. "Gravity With Granularity," CRC TR 224 Discussion Paper Series crctr224_2020_236v2, University of Bonn and University of Mannheim, Germany, revised Mar 2025.
    • Handle: RePEc:bon:boncrc:crctr224_2020_236v2
    as

    Download full text from publisher

    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp236
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Gravity Equation; Oligopoly; Trade Liberalization; Trade Elasticity;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bon:boncrc:crctr224_2020_236v2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CRC Office (email available below). General contact details of provider: https://www.crctr224.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.