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Gravity, trade integration, and heterogeneity across industries

By Natalie Chen and Dennis Novy

Abstract

We derive a micro-founded measure of bilateral trade integration that is consistent with a broad range of leading gravity models. This measure accounts for cross-industry heterogeneity by incorporating substitution elasticities estimated at the industry level. We then use it to provide a theory-based ranking of trade integration across manufacturing industries in European Union countries. In addition, we explore the determinants of trade integration, finding that substantial Technical Barriers to Trade in certain industries as well as high transportation costs associated with heavy-weight goods are the most notable trade barriers

Topics: HB Economic Theory, HD Industries. Land use. Labor
Publisher: Elsevier
Year: 2011
DOI identifier: 10.1016/j.jinteco.2011.07.005
OAI identifier: oai:eprints.lse.ac.uk:38906
Provided by: LSE Research Online
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