Scholarly Comments on Academic Economics

Recalculating Gravity: A Correction of Bergstrand’s 1985 Frictionless Case

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Abstract

Jeffrey Bergstrand’s general gravity equation is used widely in studies of international trade. This note provides a correction for the special frictionless case of the gravity equation derived in Bergstrand (1985). In this particular case of perfect substitutability of goods in consumption and in production, zero tariffs, and zero transport costs, the model simplifies correctly to PXij=Yi1/2Yj1/2, not to PXijYi1/2Yj1/2—the coefficient ½ should not be there. This correction has been confirmed by Professor Bergstrand. The special case has not been used much in empirical work, but a few theoretical models have used the special case and repeated the erroneous equation, so those papers too stand in need of correction. This note provides the derivations for the correction to the special frictionless case of Bergstrand’s gravity equation.

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Volume (Issue)
Pages
333–337
Published
JEL classification
F11
Keywords
international economics, trade, gravity model
Downloads
1,957 article downloads
5,283 complete issue downloads
Total: 7,240

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