Journal article
Gravity in Transition
Review of international economics, v 33(3), pp 616-630
Aug 2025
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
We propose a reduced‐form transitional gravity model and an accompanying flexible reduced‐form estimation approach. The Lucas–Prescott adjustment model is extended to allow for lag‐interval‐varying depreciation‐ cum ‐adjustment‐cost of bilateral trade capacities. The resulting lag‐interval‐varying trade elasticities vary from 0.4 in the short run to 4.8 in the long run. Long‐run equilibrium is reached in about 14–15 years. The model rationalizes trade elasticities that are less than one and offers a potential solution to the ‘international elasticity puzzle’–the discrepancy between trade elasticities from the trade and macro literatures. Theories of dynamic adjustment in trade costs are supported, and phasing‐in effects of FTAs are explained.
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Details
- Title
- Gravity in Transition
- Creators
- James E. Anderson (Corresponding Author) - Boston CollegeYoto V. Yotov - Drexel University
- Publication Details
- Review of international economics, v 33(3), pp 616-630
- Publisher
- Wiley
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:001438628100001
- Scopus ID
- 2-s2.0-86000653043
- Other Identifier
- 991022040669504721
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- Collaboration types
- Domestic collaboration
- Web of Science research areas
- Economics