NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Short Run Gravity

James E. Anderson, Yoto V. Yotov

NBER Working Paper No. 23458
Issued in May 2017
NBER Program(s):International Trade and Investment

Short run gravity is a geometric weighted average of long run gravity and bilateral capacity. The model features (i) joint trade costs endogenous to bilateral volumes, (ii) long run gravity as a limiting case of efficient investment in bilateral capacities, (iii) a structural ratio of short run to long run trade elasticities equal to a micro-founded buyers' incidence elasticity, and (iv) tractable short and long run models of the extensive margin. Application to manufacturing trade of 52 countries during the globalization period 1988-2006 strongly supports the model. Results solve several time invariance and trade elasticity puzzles in the literature.

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Document Object Identifier (DOI): 10.3386/w23458

 
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