The gravity model and trade in intermediate inputs

Bibliographic Data

ID21543653
AuthorsTheresa M Greaney (0000-0001-8218-121X, Department of Economics University of Hawai‘i Honolulu Hawai‘i, corresponding author), Kozo Kiyota (0000-0001-7649-9870, Department of Economics University of Hawai‘i Honolulu Hawai‘i)
Year2020
Volume43
Issue8
Pages2034-2049
Publication date2020-08-01
Open AccessYes
TypeARTICLE
VenueWorld Economy (JOURNAL)
Journal identifiersISSN: 0378-5920 • E-ISSN: 1467-9701
PublisherWiley (PUBLISHER • GB)
DOI10.1111/twec.12947
OpenAlexW3001827662
LanguageEN
Citations received4
References cited34

Is the gravity model as applicable to trade in intermediate inputs as it is to trade in final goods? One of the contributions of this paper is that we explicitly account for the dual nature of products that can be used as either intermediate inputs or final goods. We find that the structural gravity model performs extremely well for describing bilateral trade in final goods and in intermediate inputs. Moreover, this continues to hold even when we focus on a subset of countries in which intermediate inputs trade accounts for a growing share of trade, namely "Factory Asia." However, the gravity model may perform poorly due to model misspecification (i.e., exclusion of intranational trade) and/or sample selection, even after the model considers the dual nature of products. We demonstrate that the poor performance of the gravity model is not attributable to the large trade flow of intermediate inputs, which supports the continued use of the model as these trade flows continue to grow in importance worldwide

Bilateral trade · China · Econometrics · Economics · Geography · Gravity model of trade · International economics · International trade · Computer Science · Global Financial Crisis and Policies · Global Trade and Competitiveness · Global trade and economics

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