The Estimation of the Universal Gravity Model – A Replication Study of Allen, Arkolakis, and Takahashi (2020) and Some Extensions

Bibliographic Data

ID22123017
AuthorsMichael Pfaffermayr (0000-0002-8558-7757, Austrian Institute of Economic Research, corresponding author)
Year2026
Publication date2026-05-07
Open AccessYes
TypeARTICLE
VenueJahrbucher fur Nationalokonomie und Statistik (JOURNAL)
Journal identifiersISSN: 2366-049X • E-ISSN: 0021-4027
PublisherWalter de Gruyter GmbH (PUBLISHER • DE)
DOI10.1515/jbnst-2025-0084
OpenAlexW7160538265
LanguageEN
References cited22

This contribution replicates a key result of Allen, Arkolakis, and Takahashi (AAT, Journal of Political Economy, 2020), who estimate the supply curve in a cross section of countries using the estimated fixed effects of a demand-side gravity model of bilateral trade as dependent variable. The replication of their preferred specification delivers almost identical estimation results. However, AAT do not consider that the dependent variable of the supply function is a vector of estimated parameters, the fixed effects of the demand-side gravity model. The present contribution proposes a two-step estimation approach that takes into account the variation induced by the estimation of the fixed effects in the first step and leads to consistent estimates of the standard errors. Moreover, the estimates of the supply curve parameters turn out as highly sensitive to the specification of the demand-side gravity model, limiting the applicability of AAT’s approach

Estimation · Gravity model of trade · Limiting · Economic and Technological Innovation · Economic Theory and Policy · Global trade and economics

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Open DOIOpen Access