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Decomposing the Gains from Trade through the Standard Gravity Variables

Author

Listed:
  • Hakan Yilmazkuday

    (Department of Economics, Florida International University)

Abstract
Using the implications of a trade model, this paper measures the gains from trade through the standard gravity variables. Theoretically, it is shown that such gains can be calculated by using the estimated coefficients of these variables in a gravity regression, together with the bilateral expenditure shares of countries investigated. Empirically, the results show that the total actual gains through all gravity variables in the world have increased from about 1% in 1950s to about 5% as of 2015 that can be decomposed as 3.5% through proximity and 1.5% through other gravity variables. Gains through free trade agreements (FTAs) have started dominating among these other variables starting from 1990s, following the Uruguay Round. Across countries, the total gains of OECD countries are about 1.5 times those of others, whereas the total gains of European countries are more than 10 times those of Pacific countries. Calculations based on the future potential gains from trade through policy-oriented gravity variables further suggest that there is room for an additional 0.8% or 0.4% of a welfare gain in the world through having free trade agreements or using common currencies, respectively.

Suggested Citation

  • Hakan Yilmazkuday, 2020. "Decomposing the Gains from Trade through the Standard Gravity Variables," Working Papers 2009, Florida International University, Department of Economics.
    • Handle: RePEc:fiu:wpaper:2009
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    References listed on IDEAS

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    Cited by:

    1. Yilmazkuday, Hakan, 2024. "Diminishing gains from trade across countries: Interaction between trade elasticity and openness," Journal of International Money and Finance, Elsevier, vol. 141(C).

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    More about this item

    Keywords

    Welfare Gains from Trade; Potential Gains from Trade; Gravity Variables; Free Trade Agreements;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

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