The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Gravity Models

  • Pierre-Philippe Combes
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_928

Abstract

Basic gravity models state that economic interactions between two geographically defined entities are proportional to the size of these entities and inversely related to the distance between them. They have great empirical explanatory power. The impact of distance is strong and not diminishing over time. Extended gravity models incorporate borders and contiguity effects and more sophisticated interaction cost measures. They can be theory grounded, which makes each country’s location vis-à- vis the rest of the world play a role in the bilateral relationship. Various empirical approaches have been proposed to tackle the econometric issues at stake in these more sophisticated frameworks.

Keywords

Borders Business and social networks Comparative advantage Distance Equity flows Fixed-effects Foreign direct investment Gravity models Heteroskedasticity bias Imperfect competition Information costs Market potential Maximum likelihood Microfoundations Migration Monopolistic competition Nonlinear estimation Patents Preference bias Proximity Trade agreements Reverse causality Selection bias Social interaction Social networks Spatial interaction Trade Trade costs Transport costs 

JEL Classifications

F1 F2 R12 R23 R40 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Pierre-Philippe Combes
    • 1
  1. 1.