Gravity Chains: Estimating Bilateral Trade Flows When Parts And Components Trade Is Important / Richard Baldwin, Daria Taglioni.

Format:

Book

Author/Creator:

Baldwin, Richard.

Contributor:

National Bureau of Economic Research.

Taglioni, Daria.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16672.

NBER working paper series no. w16672

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Gravity Chains

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

Trade is measured on a gross sales basis while GDP is measured on a net sales basis, i.e. value added. The rapid internationalisation of production in the last two decades has meant that gross trade flows are increasingly unrepresentative of the value added flows. This fact has important implications for the estimation of the gravity equation. We present empirical evidence that the standard gravity equation performs poorly by some measures when it is applied to bilateral flows where parts and components trade is important. We also provide a simple theoretical foundation for a modified gravity equation that is suited to explaining trade where international supply chains are important.

Notes:

Print version record

January 2011.