ORCID
Daria Taglioni 0000-0003-4973-2053
Keywords
Value chains; parts and components trade; gravity; bilateral flows
Abstract
Trade is measured on a gross sales basis while GDP is measured on a net sales basis, i.e. value added. The rapid internationalisation of production in the last two decades has meant that gross trade flows are increasingly unrepresentative of the value-added flows. This fact has important implications for the estimation of the gravity equation. We present empirical evidence that the standard gravity equation performs poorly by some measures when it is applied to bilateral flows where the parts and components trade is important. We also provide a simple theoretical foundation for a modified gravity equation that is suited to explaining trade where international supply chains are important.
Acknowledgments
In this paper we present empirical evidence that the standard gravity model performs poorly by some measures when it is applied to bilateral flows where the parts and components trade is important. The paper also provides a simple theoretical foundation for a modified gravity equation that is suited to explaining trade where international supply chains are important. Finally we suggest ways in which the theoretical model can be implemented empirically.
Recommended Citation
Taglioni, D., & Baldwin, R. (2024). Gravity chains: Estimating bilateral trade flows when parts and components trade is important. Journal of Banking and Financial Economics, 2014(2), 61-82. https://doi.org/10.7172/2353-6845.jbfe.2014.2.3
First Page
61
Last Page
82
Page Count
22
Received Date
25 May 2014
Revised Date
31 July 2014
Accept Date
29 October 2014
Online Available Date
19 November 2014
DOI
10.7172/2353-6845.jbfe.2014.2.3
JEL Code
F01; F10
Publisher
University of Warsaw