The Gravity Model of International Trade: A User Guide (An updated version)
The gravity model is the workhorse of the applied international trade literature. It has been used in literally thousands of research papers and published articles covering all areas of trade. It is of particular interest to policy researchers because it makes it possible to estimate the trade impacts of various trade-related policies, from traditional tariffs to new “behind-the-border” measures. With data increasingly available for developing as well as developed countries, the gravity model has come to be the starting point for a wide variety of research questions with a policy component.
The purpose of this User Guide is to provide a “hands on” introduction to gravity modeling for applied policy researchers. It is designed to be used in conjunction with a dataset of bilateral trade in services available for free download, and readers are encouraged to replicate the results presented here using the Stata code provided in the text. Although some basic knowledge of Stata is required as a pre-requisite, more advanced commands and techniques are introduced in the text as necessary. Once the basic techniques have been mastered, readers are encouraged to extend the results presented here using alternative specifications and methodologies.