PL EN


2014 | 2(2) | 61-82
Article title

Gravity chains: Estimating bilateral trade flows when parts and components trade is important

Content
Title variants
Languages of publication
EN
Abstracts
EN
Trade is measured on a gross sales basis while GDP is measured on a net sales basis, i.e. value added. The rapid internationalisation of production in the last two decades has meant that gross trade flows are increasingly unrepresentative of the value-added flows. This fact has important implications for the estimation of the gravity equation. We present empirical evidence that the standard gravity equation performs poorly by some measures when it is applied to bilateral flows where the parts and components trade is important. We also provide a simple theoretical foundation for a modified gravity equation that is suited to explaining trade where international supply chains are important.
Year
Issue
Pages
61-82
Physical description
Dates
online
2014-11-19
Contributors
References
  • Anderson, James and Eric van Wincoop, 2003. “Gravity with Gravitas: A Solution to the Border Puzzle”, American Economic Review, American Economic Association, vol. 93(1), pp. 170–192, March.
  • Anderson, James and Yoto V. Yotov, 2010. “The Changing Incidence of Geography”, American Economic Review, American Economic Association, vol. 100(5), pp. 2157–2186.
  • Anderson, James, 1979, “The theoretical foundation for the gravity equation”, American Economic Review 69, pp. 106–116.
  • Ando, Mitsuyo and Fukunari Kimura (2009). “Fragmentation in East Asia: Further Evidence”, ERIA Discussion Paper Series, DP-2009-20, October.
  • Athukorala, P. and N. Yamashita (2006), “Production Fragmentation and Trade Integration: East Asia in a Global Context”, The North American Journal of Economics and Finance, 17, 3, pp. 233–256.
  • Baier, Scott L. and Jeffrey H. “The growth of world trade: tariffs, transport costs, and income similarity”, Journal of International Economics 71(1), pp. 72–95.
  • Balassa, Bela (1965), Economic Development and Integration. Centro de Estudios Monetarios Latinoamericanos.
  • Balassa, Bela (1966). “Tariff Reductions and Trade in Manufacturers among the Industrial Countries”, American Economic Review, Vol. 56, No. 3 (June), pp. 466–473.
  • Baldone, Salvatore, Fabio Sdogati and Lucia Tajoli (2007). “On Some Effects of International Fragmentation of Production on Comparative Advantages, Trade Flows and the Income of Countries”, The World Economy, Blackwell Publishing, vol. 30(11), pp. 1726–1769, November.
  • Baldwin, Richard (2006). “Globalisation: the great unbundling(s)”, Chapter 1, in Globalisation challenges for Europe, Secretariat of the Economic Council, Finnish Prime Minister’s Office, Helsinki, 2006, pp. 5–47. http://hei.unige.ch/baldwin/PapersBooks/Unbundling_Baldwin_06-09-20.pdf
  • Baldwin, Richard (2011). “21st century regionalism: Filling the gap between 21st century trade and 20th century trade governance”, CEPR Policy Insight No. 56.
  • Baldwin, Richard and Daria Taglioni (2007). “Gravity for dummies and dummies for gravity equations” NBER WP 12516, published as “Trade effects of the euro: A comparison of estimators”, Journal of Economic Integration, 22(4), December, pp. 780–818. 2007.
  • Bergstrand, Jeffrey (1985),”The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence”, Review of Economics and Statistics, 1985, 67:3, August, pp. 474–481.
  • Bergstrand Jeffrey H. (1989) “The Generalized Gravity Equation, Monopolistic Competition, and the Factor- Proportions Theory in International Trade” Review of Economics and Statistics, Vol. 71, no. 1, February, pp. 143–153.
  • Bergstrand Jeffrey H. (1990) “The Heckscher-Ohlin-Samuelson model, the Linder hypothesis and the determinants of bilateral intra-industry trade”. The Economic Journal, pp. 1216–1229
  • Bergstrand, Jeffrey H. and Peter Egger (2010) “A General Equilibrium Theory for Estimating Gravity Equations of Bilateral FDI, Final Goods Trade and Intermediate Goods Trade”, in S. Brakman and P. Van Bergeijk (eds) The Gravity Model in International Trade: Advances and Applications Cambridge University Press, New York.
  • Berthelon, Matias, and Caroline Freund (2008). “On the conservation of distance in international trade”, Journal of International Economics, vol. 75(2), pp. 310–320, July.
  • Brun, Jean-François, Céline Carrère, Patrick Guillaumont and Jaime de Melo (2005) “Has Distance Died? Evidence from a Panel Gravity Model”, World Bank Economic Review, vol. 19(1), pp. 99–120.
  • Carrere, Celine (2006) “Revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model”, European Economic Review, Elsevier, vol. 50(2), pp. 223–247, February.
  • Combes Pierre-Philippe, Miieriem Lafourcade and Thierry Mayer The trade-creating effects of business and social networks: evidence from France Journal of International Economics 66 (1), pp. 1–29.
  • Dreze, Jacques (1961) “Les exportations intra-C.E.E, en 1958 et la position Belge”. Recherches Economiques de Louvain, Vol. 27, 1961, pp. 717–738.
  • Egger Hartmut and Peter Egger, 2004 “Outsourcing and Trade in a Spatial World”, CESifo Working Paper Series 1349, CESifo Group Munich.
  • Ethier W J (1982) (1982), “National and International Returns to Scale in the Modern Theory of International Trade”, The American Economic Review, 72, June, pp. 389–405
  • Feenstra, Robert (2003). Advanced International Trade: Theory and Evidence, Princeton University Press.
  • Fujita, Masahisa, Paul Krugman, Anthony J. Venables the Spatial Economy MIT Press.
  • Greenaway David and Chris Milner (1987) Intra-industry trade: Current perspectives and unresolved issues Weltwirtschaftliches Archiv, 123 (1) (1987), pp. 39–57.
  • Grossman, Gene M. and Esteban Rossi-Hansberg (2008). “Trading Tasks: A Simple Theory of Offshoring,” American Economic Review, vol. 98(5), pp. 1978–1997, December.
  • Grubel, Herbert G., EJ. Lloyd (1975). lntra-lndustry Trade: The Theory and Measurement of International Trade in Differentiated Products. London.
  • Harrigan, James, 1996. “Openness to trade in manufactures in the OECD,” Journal of International Economics, Elsevier, vol. 40(1-2), pp. 23–39, February.
  • Helpman, Elhanan and Paul Krugman, 1985, Market structure and foreign trade, MIT Press.
  • Head Keith and Thierry Mayer (2000) “Non-Europe: the magnitude and causes of market fragmentation in the EU” Weltwirtschaftliches Archiv 136 (2), pp. 284–314
  • Hummels, D., D. Rapoport and K-M. Yi (1998). “Vertical Specialization and the Changing Nature of World Trade”, Federal Reserve Bank of New York Economic Policy Review (June), pp. 79–99.
  • Jacks, David, Christopher Meissner, and Dennis Novy (2008). “Trade Costs, 1870–2000”, American Economic Review, 98:2, pp. 529–534.
  • Jones, Ronal and Henryk Kierzkowski (1990), “The Role of Services in Production and International Trade: A Theoretical Framework”, ch. 3 in Jones and Anne Krueger (eds.): The Political Economy of International Trade (Blackwells).
  • Kimura, F., Y. Takahashi and K. Hayakawa (2007), “Fragmentation and Parts and Components Trade: Comparison between East Asia and Europe”, The North American Journal of Economics and Finance, 18, 1, pp. 23–40.
  • Krugman Paul and Anthony Venables (1996) “Integration, specialisation, and adjustment” European Economic Review 40, pp. 959–967.
  • Lamy, Pascal (2010). “An urban legend about international trade”, speech 5 June 2010, http://other-news.info/index.php?p=3390.
  • Linneman, Hans (1966). “An econometric study of international trade flows, North-Holland, Amsterdam.
  • Novy, Denis (2010). “Trade Costs in the First Wave of Globalization” Explorations in Economic History 47(2), pp. 127–141.
  • Obstfel Maurice and Kenneth Rogoff (2000) “The six major puzzles in international macroeconomics: is there a common cause?” NBER Working Paper 7777.
  • Ottaviano, Gianmarco I.P., Takatoshi Tabuchi, and Jacques-François Thisse (2002). “Agglomeration and Trade Revisited,” International Economic Review, Vol. 43, pp. 409–436.
  • Poyhonen, Pentti (1963). “A tentative model for the volume of trade between countries,” Weltwirtschaftliches Archiv, 90, pp 93–99.
  • Rauch, J., 1999. Networks versus markets in international trade. Journal of International Economics 48, pp. 7–35.
  • Simon J. Evenett and Wolfgang Keller, 2002. “On Theories Explaining the Success of the Gravity Equation,” Journal of Political Economy, University of Chicago Press, vol. 110(2), pp. 281–316, April.
  • Tinbergen, Jan (1962). Shaping the world economy: Suggestions for an international economics policy, The Twentieth Century Fund, New York.
  • Vanek, Jaroslav (1963). “Variable Factor Proportions and Interindustry Flows in the Theory of International Trade,” Quarterly Journal of Economics, LXXV (Feb. 1963).
  • Verdoorn P.J “The Intra-Bloc Trade of Benelux”. In: Edward A.G. Robinson (Ed.), Economic Concequences of the Size of Nations. Proceedings of a conference held by the International Economic Association at Lisbon in 1957. London 1960, pp. 291–329.
  • Yi, K-M (2003). “Can Vertical Specialization Explain the Growth of World Trade?” The Journal of Political Economy, Vol. 111, No. 1 (Feb.), pp. 52–102.
  • Yokota, Kazuhiko (2008). “Parts and Components Trade and Production Networks in East Asia – A Panel Gravity Approach”, Chapter 3 in Hiratsuka & Uchida eds., Vertical Specialization and Economic Integration in East Asia, Chosakenkyu-Hokokusho, IDE-JETRO, 2008.
  • Wooldridge Jefferey (2003) Econometric Analysis of Cross Section and Panel Data Massachusetts Institute of Technology.
Document Type
Publication order reference
Identifiers
ISSN
2353-6845
YADDA identifier
bwmeta1.element.desklight-3dee39fe-ca0a-4bc9-bfd0-8a3c5f1024f8
JavaScript is turned off in your web browser. Turn it on to take full advantage of this site, then refresh the page.