# The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence

@article{Bergstrand1985TheGE, title={The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence}, author={Jeffrey H. Bergstrand}, journal={The Review of Economics and Statistics}, year={1985}, volume={67}, pages={474-481} }

Despite the gravity equation's empirical success in "explaining" trade flows, the model's predictive potential has been inhibited by an absence of strong theoretical foundations. A general equilibrium world trade model is presented from which a gravity equation is derived by making certain assumptions, including perfect international product substitutability. If, however, trade flows are differentiated by origin as evidence suggests, the typical gravity equation is misspecified, omitting… Expand

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