NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Gold Standard Gravity

James E. Anderson, Yoto V. Yotov

NBER Working Paper No. 17835
Issued in February 2012
NBER Program(s):   ITI

This paper provides striking confirmation of the restrictions of the structural gravity model of trade. Structural forces predicted by theory explain 95% of the variation of the fixed effects used to control for them in the recent gravity literature, fixed effects that in principle could reflect other forces. This validation opens avenues to inferring unobserved sectoral activity and multilateral resistance variables by equating fixed effects with structural gravity counterparts. Our findings also provide important validation of a host of general equilibrium comparative static exercises based on the structural gravity model.

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Document Object Identifier (DOI): 10.3386/w17835

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