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.
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Combes, PP. (2018). Gravity Models. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_928
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DOI: https://doi.org/10.1057/978-1-349-95189-5_928
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