Journal of Political Economy Vol. 128 No. 2 2020
Universal Gravity
Abstract
We study the theoretical properties and counterfactual predictions of a large class of general equilibrium trade and economic geography models. By combining aggregate factor supply and demand functions with market-clearing conditions, we prove that existence, uniqueness, and—given observed trade flows—the counterfactual predictions of any model within this class depend only on the demand and supply elasticities (“gravity constants”). Using a new “model-implied” instrumental variables approach, we estimate these gravity constants and use these estimates to compute the impact of a trade war between the United States and China.
- DOI
- 10.1086/704385
- Volume
- 128
- Issue
- 2
- Pages
- 393-433
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref