The Geometry of the Distance Coefficient in Gravity Equations in International Trade

摘要

The gravity equation in international trade is one of the most robust empirical regularities in economics. A remarkable numeric similarity of estimated coeffcients over time, space and for different types of goods has puzzled economists for some time. In this paper I provide a geometric argument why a large class of data generating processes lead to the observation of the coefficients typically found, and thus provide a natural and simple explanation for the numeric similarity of estimates provided in this literature. I provide examples of trade that are consistent with this model.