International trade without CES: estimating translog gravity

Novy, Dennis (2013) International trade without CES: estimating translog gravity. Journal of International Economics, 89 (2). pp. 271-282. ISSN 0022-1996

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Abstract

This paper derives a micro-founded gravity equation based on a translog demand system that allows for flexible substitution patterns across goods. In contrast to the standard CES-based gravity equation, translog gravity generates an endogenous trade cost elasticity. Trade is more sensitive to trade costs if the exporting country only provides a small share of the destination country's imports. As a result, trade costs have a heterogeneous impact across country pairs, with some trade flows predicted to be zero. I test the translog gravity equation and find empirical evidence that is in many ways consistent with its predictions.

Item Type:	Article
Official URL:	http://www.journals.elsevier.com/journal-of-intern...
Additional Information:	© 2013 Elsevier B.V.
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HC Economic History and Conditions
JEL classification:	F - International Economics > F1 - Trade > F11 - Neoclassical Models of Trade F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies F - International Economics > F1 - Trade > F15 - Economic Integration
Date Deposited:	01 Jul 2014 14:50
Last Modified:	12 Dec 2024 00:30
Projects:	RES-000-22-3112
Funders:	Economic and Social Research Council
URI:	http://eprints.lse.ac.uk/id/eprint/57367

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