We develop a structural gravity model that introduces scale effects in bilateral trade. Scale effects and incomplete passthrough give two channels through which exchange rates have real effects on trade patterns. Estimates from Canadian provincial trade data identify these effects through their...

The standard theory of trade reform uses a passive government budget constraint, in which changes in tariff revenue are offset by changes in lump sum transfers. This paper offers a general framework for the analysis of trade reform when the government budget constraint is active, meaning that...

The gravity model has been widely used to infer substantial trade flow effects of institutions such as customs unions and exchange rate mechanisms. McCallum [1995] found that the US-Canada border led to trade between provinces that is a factor 22 (2,200%) times trade between states and...

The gravity model in economics was until relatively recently an intellectual orphan, unconnected to the rich family of economic theory. This review is a tale of the orphan's reunion with its heritage and the benefits that have flowed from it. Gravity has long been one of the most successful...

Short run gravity is a geometric weighted average of long run gravity and bilateral capacity. The model features (i) joint trade costs endogenous to bilateral volumes, (ii) long run gravity as a limiting case of efficient investment in bilateral capacities, (iii) a structural ratio of short run...

Corruption and imperfect contract enforcement dramatically reduce trade. This paper estimates the reduction, using a structural model of import demand in which transactions costs impose a price markup on traded goods. We find that inadequate institutions constrain trade far more than tariffs do....

Much economic policy is deliberately shifted away from direct political processes to administrative processes --- political pressure deflection. Pressure deflection poses a puzzle to standard political economy models which suggest that having policies to `sell' is valuable to politicians. The...

This paper rehabilitates the concept of effective rate of protection for use in political economy. The usual definition corresponds to no economically interesting magnitude in general equilibrium. The effective rate of protection for a sector is redefined here as the uniform tariff which is...

We develop a dynamic multi-country trade model with foreign direct investment (FDI) in the form of non-rival technology capital. The model nests structural gravity sub-systems for FDI and trade, with accumulation/decumulation of phyisical and technology capital in transition to the steady state....

This paper infers the terms of trade effects of Free Trade Agreements (FTA's) with the structural gravity model. Using panel data methods to resolve two way causality between trade and FTA's, we estimate direct FTA effects on bilateral trade volume in 2 digit manufacturing goods from 1990-2002....