Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235427 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9057
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
The gravity equation is the workhorse model for analysis of bilateral trade flows. Despite solid theoretical foundations and clear gains from theory-consistent policy analysis, there are still gaps between gravity theory and empirics. This paper focuses on domestic trade flows, and I argue that there are significant benefits from adhering to theory by estimating gravity equations with domestic (in addition to international) trade flows. To this end, I review the contributions from the related literature and I synthesize them into fifteen arguments for using domestic trade flows in gravity estimations. The survey of the literature reveals the need for further theory contributions and new data developments, and points to opportunities for more empirical analysis and policy applications.
Subjects: 
domestic trade flows
structural gravity
trade policy
estimation
JEL: 
F13
F14
F16
Document Type: 
Working Paper
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