Inverted Gravity

We invert structural gravity to recover trade cost changes delivering targeted outcomes. For attainable welfare targets, one instrument per target yields a unique solution. At unchanged producer prices and to first order, each instrument must change by the welfare target divided by its own expenditure share; the required domestic change is about the size of the target, while the import change is several times larger. Inverting observed trade flows gives a separate trade cost change for each of the two directions in which a pair of countries trades. Applications to NAFTA and world trade illustrate the benefits of our approach.