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| Author: | Evenett, S. J. Keller, W. |
| Title: | On Theories Explaining the Success of the Gravity Equation |
| Journal: | Journal of Political Economy
2002 : APR, VOL. 110:2, p. 281-316 |
| Index terms: | EMPIRICAL RESEARCH SUCCESS EQUATIONS THEORIES |
| Language: | eng |
| Abstract: | The authors examine whether two important theories of trade, the Heckscher-Ohlin theory and the increasing returns theory, can account for the empirical success of the so-called gravity equation. Since versions of both theories can predict this equation, the authors tackle the model identification problem by conditioning bilateral trade relations on factor endowment differences and on the share of intraindustry trade. Only for large differences in factor endowments does the Heckscher-Ohlin model predict perfect production specialization in different countries as well as the gravity equation, and trade is purely in goods produced with different factor intensities. The authors' empirical analysis yields three findings. |
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