Gravity with Gravitas: A Solution to the Border Puzzle

  title={Gravity with Gravitas: A Solution to the Border Puzzle},
  author={James E. Anderson and Eric van Wincoop},
  journal={NBER Working Paper Series},
The gravity model has been widely used to infer substantial trade flow effects of institutions such as customs unions and exchange rate mechanisms. McCallum [1995] found that the US-Canada border led to trade between provinces that is a factor 22 (2,200%) times trade between states and provinces, a spectacular puzzle in light of the low formal barriers on this border. We show that the gravity model usually estimated does not correspond to the theory behind it. We solve the 'border puzzle' by… Expand