This paper claims that distance alone is a poor proxy for international transport costs in gravity equations. We develop a theoretical framework with a manufacturing and a transport sector, where the level of manufacturing exports determines the demand for transport. Above a certain threshold,...

The eastern enlargement of the European Union (EU) brought and will bring full membership to countries whose trade barriers with the EU had to a large extent already been removed under Free Trade Agreements (FTAs) during the 1990s. We employ a theory-based new version of a gravity equation,...

In this paper, we develop a new version of a theory-based gravity equation to properly account for the relative price indices initially proposed by Anderson and van Wincoop (2003). The partially time-varying character of our multilateral resistance variables overcomes the bias present in earlier...

Gravity equations explaining foreign affiliates' sales are ad hoc and hence, estimated coeffcients are hard to interpret. We therefore provide the theoretical underpinnings of the gravity equation applied to the analysis of sales of foreign affiliates of multinational firms. We argue that the...

Cultural proximity increases bilateral trade flows through a trade-cost and a bilateral-affinity (preferences) channel. Conventional measures of cultural proximity, such as common language, common religion, etc., do not allow to separately quantify those channels empirically. We argue that...