Unlocking New Methods to Estimate Country-specific Effects and Trade Elasticities with the Structural Gravity Model

Yoto V. Yotov; Angelos Theodorakopoulos; Rebecca Freeman; Mario Larch

doi:10.1002/jae.3133

Unlocking New Methods to Estimate Country-specific Effects and Trade Elasticities with the Structural Gravity Model

Yoto V. Yotov, Angelos Theodorakopoulos ^*, Rebecca Freeman, Mario Larch

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

Abstract

We propose new methods to identify the impact of country-specific characteristics, policies, and trade costs on bilateral trade flows within the structural gravity framework. We complement theory with a simple two-stage estimating procedure and offer proof of concept by quantifying the impact of country-specific research and development (R&D) expenditure on trade. Our results suggest a positive relationship overall, but a larger impact of R&D on international (versus domestic) trade. Importantly, our methods deliver trade elasticity estimates without the need for price or tariff data, and we highlight this feature by obtaining aggregate and sectoral trade elasticity estimates, including for services.

Original language	English
Journal	Journal of Applied Econometrics
Early online date	20 May 2025
DOIs	https://doi.org/10.1002/jae.3133 https://doi.org/10.1002/jae.3133
Publication status	E-pub ahead of print - 20 May 2025

Bibliographical note

Copyright © 2025 Bank of England and The Author(s). Journal of Applied Econometrics published by John Wiley & Sons Ltd. This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.

Data Access Statement

The data is publicly available. Specifically, all necessary information and instructions for obtaining and managing the data, as well as the step-by-step procedures used to replicate all results presented in both the manuscript and the supporting information appendix, are publicly available at: https://journaldata.zbw.eu/dataset/new-methods-to-estimate-country-specific-effects-and-trade-elasticities-with-the-structural-gravity

Keywords

Structural gravity
Country-specific trade costs
Trade elasticity
Elasticity of substitution
Services
R&D and trade

Access to Document

10.1002/jae.3133Licence: CC BY 4.0
10.1002/jae.3133

J of Applied Econometrics - 2025 - Freeman - Unlocking New Methods to Estimate Country‐Specific Effects and Trade
Copyright © 2025 Bank of England and The Author(s). Journal of Applied Econometrics published by John Wiley & Sons Ltd. This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
Final published version, 1.07 MBLicence: CC BY 4.0

Cite this

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title = "Unlocking New Methods to Estimate Country-specific Effects and Trade Elasticities with the Structural Gravity Model",

abstract = "We propose new methods to identify the impact of country-specific characteristics, policies, and trade costs on bilateral trade flows within the structural gravity framework. We complement theory with a simple two-stage estimating procedure and offer proof of concept by quantifying the impact of country-specific research and development (R&D) expenditure on trade. Our results suggest a positive relationship overall, but a larger impact of R&D on international (versus domestic) trade. Importantly, our methods deliver trade elasticity estimates without the need for price or tariff data, and we highlight this feature by obtaining aggregate and sectoral trade elasticity estimates, including for services. ",

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AU - Larch, Mario

N1 - Copyright © 2025 Bank of England and The Author(s). Journal of Applied Econometrics published by John Wiley & Sons Ltd. This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.

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Unlocking New Methods to Estimate Country-specific Effects and Trade Elasticities with the Structural Gravity Model

Abstract

Bibliographical note

Data Access Statement

Keywords

Access to Document

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