Estimating Trade Policy Effects with Structural Gravity

62 Pages Posted: 24 Aug 2016

See all articles by Roberta Piermartini

Roberta Piermartini

World Trade Organization (WTO) - Economic Research and Analysis Division

Yoto Yotov

Drexel University - Department of Economics & International Business

Date Written: July 27, 2016

Abstract

The objective of this manuscript is to serve as a practical guide for estimations with the structural gravity model. After a brief review of the theoretical foundations, we summarize the main challenges with gravity estimations and we review the solutions to address those challenges. Then, we integrate the latest developments in the empirical gravity literature and we offer six recommendations to obtain reliable partial equilibrium estimates of the effects of bilateral and non-discriminatory trade policies within the same comprehensive, and theoretically-consistent econometric specification. Our recommendations apply equally to analyses with aggregate and disaggregated data. Interpretation, consistent aggregation methods, and data challenges and sources for gravity estimations are discussed as well. Empirical exercises demonstrate the usefulness, validity, and applicability of our methods.

Keywords: structural gravity, trade policy, estimation, partial equilibrium analysis

JEL Classification: F130, F140, F160

Suggested Citation

Piermartini, Roberta and Yotov, Yoto, Estimating Trade Policy Effects with Structural Gravity (July 27, 2016). CESifo Working Paper Series No. 6009, Available at SSRN: https://ssrn.com/abstract=2828613

Roberta Piermartini

World Trade Organization (WTO) - Economic Research and Analysis Division ( email )

Rue de Lausanne 154
CH-1211 Geneva
Switzerland
+41 22 739 5492 (Phone)
+41 22 739 5762 (Fax)

Yoto Yotov (Contact Author)

Drexel University - Department of Economics & International Business ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States

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